UK Supermarket Market Structure
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Keywords: supermarket oligopoly, supermarket oligopoly analysis
The Market Structure of Supermarket in the UK
Oligopoly refers to market, which is imperfectly competitive and dominated by a few suppliers (Anderton, 322). This market structure has three main characteristics. Firstly, the few firms must be the main suppliers in the industry. Secondly, the oligopolistic firms must be interdependent. Thirdly, other new firms are not able to entry the industry. One example from the AllExperts (2010), in the UK, the supermarket industry, Tesco, Asda, Sainsbury and Morrison, who have over 75% market share. Consequently, consumers in the UK are significantly influenced by these oligopolistic supermarkets because of the lower price, excellent quality of service, the unprincipled collusion, the shortage of competition.
To the consumers from the supermarkets in the UK, the oligopolistic supermarkets are benefit because the consumers receive the lower and rigid price. Due to there are only four companies dominating the supermarket industry, they are not necessary to compete with other supermarkets on the price, in other words, non-price competition, and the price will be relative stability. Hence, they have ability to set the price rigidly to make maximum profits in the long run. However, if the prices they make are too high, other companies will come into the market to scramble their consumers. As a result, the oligopolistic supermarkets have to make a lower and rigid price for the barriers to entry the industry. Furthermore, when the improvement of the scale of the supermarket leads to the increasing of the supply, the price of the products will decrease or give a discount because of the reducing of the cost from the wholesalers. Overall, in the UK, the consumers never concern about the price of the products in the oligopolistic supermarkets.
In the oligopoly market, one phenomenon may appear as one of the oligopolistic supermarkets want to be the monopolistic one in the industry in the England. And this phenomenon can be reflected by the kinked demand curve. According to the Figure 1, this supermarket's competitors will reduce the prices of their products to the prices this supermarket set if their prices are higher and preserve the prices if their prices are lower than those of the other oligopolistic supermarkets. As a result, the consumers can enjoy the lower prices, when this phenomenon appears.
In the consumers' opinions, the excellent quality of service from the oligopolistic supermarkets in the UK is the second advantage. For instance, in order to prevent other supermarkets to entry, the oligopolies still need to make progresses on their service system which includes the service attitudes, the after-sale service and the management operating system. For examples, the supermarkets offer enough parking spaces for consumers' cars, displaying the same kind of product together, customers service department for helping the consumers resolve the questions of product and shopping, quantities of chairs and several restaurants for a rest and the delivery service. The service system is unusual important because it incarnates a supermarket's image. Consumers prefer to shop in a supermarket which has the excellent service system. The splendid image not only can save the expensive outlay of advertising, but also attract more consumers and make the consumers feel pleased when they are shopping. In general, oligopolistic supermarkets bring the consumers excellent quality of service in the UK.
Nevertheless, the oligopolistic supermarkets have disadvantages for the consumers in the UK, collusion. No companies refuse to make more profits. The knowledge of the oligopoly is imperfect, and the price has no compete; therefore, these four supermarkets are able to collude to control the price or the supply to increase the profits. This action is rather unprincipled to the consumers because the consumers have to spend more money on the product under the unwitting circumstances. No matter what happens, the oligopolistic supermarkets, which are colluding, will protect themselves to have the maximum profits. Consequently, the collusion among the oligopolistic supermarkets is seriously harmful to the consumers in the UK.
To the consumers in the UK, the shortage of competition is another disadvantage. The supermarket industry is dominated by only four companies, which are Tesco, Asda, Sainsbury and Morrison. They have approximately 75% market share. This means there are no more than three strong competitors against each supermarket. The oligopolistic supermarkets have less motion on improving the comprehensive quality and stay in the same place instead of make great processes. In other words, if the oligopolistic supermarkets have a price competition, it will promote the techniques, the service and price more beneficial to the consumers. In brief, the shortage of competition results in cease to advance.
In summary, the oligopoly in the supermarkets has more advantages than the disadvantage for the consumers in the UK. When the oligopolistic supermarkets offer the lower and rigid price, the consumers still can enjoy the preeminent quality of service, and according to the kinked demand curve, the prices of the products will be lower. Nonetheless, the four main supermarkets collude immorally sometimes in order to get the maximum profits and have non-competition to make processes. If the oligopolistic supermarkets want to be beneficial to the consumers, they are necessary to have at least three oligopolies, which have different market share, and the most significant way is not to be collusion.
1. Anderton, A. (2008) Economics (5th Edition). Harlow: Pearson Education (Access date: 29th Jan. 2010)
2. Warren (2009) AllExperts http://en.allexperts.com/q/Economics-2301/2009/10/oligopoly.htm (Access date: 29th Jan. 2010)
3. Pearson (2010) Kinked Demand http://wps.aw.com/aw_carltonper_modernio_4/21/5566/1424971.cw/content/index.html (Access date: 29th Jan. 2010)
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