To show an overview, oligoploy widely exists in UK supermarket industry. For example, in recent years , 75% approximately market share was dominated by several oligarchs - the five main firms. They are Tesco, Sainsbury, Asda, Safeway and Morrison's (123helpme.com., n.d.). The stocks they sell are extremely various. For example, consumers can find the products or sevices from stapler to pets' food, from SIM card for mobile phone to make-up. Otherwise, it will not called 'super', as a prefix.Firstly, I would like to demostrate the definition of oligopoly - a sort of market structures where only a few big and interdependent firms dominate it and compete with each other.(Anderton, 2008:322) Therefore, the supermarket industry in UK conforms to this kind of situation. Hence, the UK's supermarket industury is oligopolistic, QED. The rest of this essay will mainly focus on the consumers' benefits level under such market. The next several paragraphs will analyse the advantages and disadvantages of the consumers in oligopolistic market of UK supermarket industry, in detail.
Initially, this paragraph is about disvantage analysis of consumers. Generally, in a oligopolistic market exists a kind of delicated balance - the only a few firms will not easily change their price usually. According to the previous observation and experience, if one firm in the oligopolistic situation have raise the price of their products, the other firms will most likely do not change simultaneously, and that firm will lost nearly all its market share immediately; people tend to expense less when the products/services are homogenous. However, when one firm, conversely, lower their price in order to get more market share or obtain some other bussiness goals, the other firms will most likely to lower their prices to the same level simultaneously, for keeping their market shares.That tends to be a price war. ( Anderton, 2008:328) The two probable situation above are in accordance to the kinked demand curve therory(Anderton, 2008:328). In short, the price is relatively stable in such market. Next is about pricing policies of the oligarchs of UK supermarket industry. Since the oligarchs are interdependent and adversely compete with each other, their non-price strategy will be obvious. Hence in the short run, the pricing direction will be guided by the total costs - tend to be just a bit over the breakeven point if showed in a diagram. All the firms will set and change their prices repeatedly so as to adapt to the whole market. Eventually, a stable balance forms and the consistent price range will not easily shift around from then on; only when the situation of the kinked demand curve therory demostrated above happens will it be broken. Thereby, some advantages for consumers are not far to see in UK supermarket field. One, they get reasonale price on products/services served by the oligarchs. Two, they have choices - they have the initiative to go to which supermarket and to consume what brand of products/services. Third, ensurance is under legislation. Collusion is illgeal in UK. Hence the price cannot be made conspiratorially. For example, that all the oligarchs raise their price on one product/service in a collusive same level is illegal.
Now turing to the disadvantages aspect, firstly, in a oligopolistic market , as the supermarket industry in this case. All firms may have the ambition to be the only firm - the monopolist. Therefore some abnormal and unfair strategies will be adopted.One of them is predatory pricing. For example, Firm A and Firm B are both the only participants in a oligopolistic industry. That is what we call duopoly. .However, A and B have the distance on power. Firm A is stronger in a way. To be the only firm, Firm A will have to deal with Firm B. It will eliminate Firm B on market share and integrated power to start its long-run plan. To begin with, Firm A will have to find the shortbacks of firm B, and conduct some changes to nibble up Firm B's market share on those fields. Simultaneously, Firm A will get some cost. One of the most frequent measures is the predatory pricing. To nibble Firm B's market share up, Firm A will cut down the price. And Firm B may finally exit the market if it was beaten in the price war. Obviously, that is of the purpose of anticompetition - Firm A want to be the monopolist. If so, the price will not be in a balance any more and consumers may have to pay more reluctantly, as they have no other choices. Nervertheless, this issue is still controversial. But this potential and probable result , indeed, will damage consumers' benefits, and it conforms to the feature of oligopoly - non-price competition. Though currently it is not the situation of the UK's supermarket industry, the possibility still exists. Another potential disadvantag is tie-in sale - to add a paid by-product on another product that is what the consumers really want (BusinessDictionary.com., 2010). But tie-in sale is more complex and controversial. The only thing that can be certain is that the firms that conduct a tie-in is with dubious. For example, in a stock pack sold in the supermarket, coffee is sold with a cup. Consumers will get loss - they may don not need a cup at all.
Hereto, a conclusion can be generated. In short run, when the balance is stable, consumers can obtain more benefits than disadvantages when trading in the oligopolistic supermarket industry. In the long run, the situation has more uncertainty. At this time the consumers may have disadvantages that are becoming more and more obvious.
Reference:
123helpme.com.[Online], 'Economics -- UK supermarkets - Oligopolistic competition'
Available at: http://www.123helpme.com/preview.asp?id=97935
Access on Feb. 12th 2010
Anderton.A (2008), Economic (5th edition) , Harlow Essex, Pearson Education.
BussinessDictionary.com [Online], 'tie-in sale - Finance Definition'
Available at http://www.yourdictionary.com/finance/tie-in-sale
Access on Feb. 12th 2010
