In Britain, the supermarket industry is controlled by a few major houses who portion the market per centum greater than 74. Harmonizing to Anderton ( 2007 ), an oligopoly market is a combination of a little figure of mutualist providers keeping more than 70 % of the market portion, making a high barrier for other houses to come in the market. Equally good as the UK supermarket industry behaviours, it is evidently to place that the market ran by an oligopoly.
( BBC NEWS, 2008 ) There are four major members in the Britain supermarket industry. As the figure BBC NEWS ( 2008 ) shows, Tesco who is believed the biggest member in the market owns 31.4 % of the market portion. Meanwhile, the other three, Asda, Sainsbury ‘s and Morrison ‘s, each takes more than 11 % of the market portion, so that they can named as the four giants in the market ( BBC NEWS, 2008 ). The chief intent of this essay is to give a treatment on the advantage and disadvantage of oligopoly base on the UK supermarket. The oligopoly market can profit consumers by bear downing a ideal monetary value, making advanced merchandises and doing consumers ‘ life easier, nevertheless, a oligopoly market may besides restrict consumers ‘ picks, harm community civilization, and consumers ‘ benefits may be harmed by a collusion.
On the positive side, the British supermarket industry establishes a state of affairs that is more convenient for the consumers to see their shops and fulfill their demands and ingestion. The several major supermarket giants compete with each other by making new merchandise and puting an ideal monetary value for their consumers.
First of all, oligopoly is different from perfect competition in the fact that monetary value is non the primary concern of houses. The supermarket giants in the UK supermarket industry prefer to derive net incomes through spread outing the graduated table of their houses and increasing merchandises and services. This is based on the non-price competition theory. Harmonizing to Anderton ( 2007 ), this signifier of competition is defined that rivals will develop their market portions by doing a determination upon a selling mix instead than vie with each other with lower monetary values. That means, they will pay more attending to administering the better ‘4Ps ‘ — merchandise, publicity, topographic point and monetary value instead than merely sing a monetary value scheme. This creates a favourable state of affairs for the consumers, because more and more supermarkets will be run in different countries, which can do shopping more convenient for consumers. For case, the four giants — Tesco, Asda, Sinsbury and Morrison ‘s are implementing a new scheme to spread out their concern — opening some little shops to assist a figure of “ hard currency rich, clip hapless ” consumers ( BBC NEWS, 2006 ). Therefore, this type of shops can salvage clip for busy work forces and adult females. Furthermore, honouring the “ 4P ” rule, houses in an oligopoly market will pay attending to the merchandises and services quality, which may benefits consumers.As Tesco ( 2008 ) stated, many merchandises in shops have been improved in merchandise safety.
Second, a figure of types of merchandises produced by the major houses because of a ferocious competition among them, which gives the consumers plentifulness of shopping picks and consequences in the prosperity of the market. In this state of affairs, houses compete with each other by fabricating more advanced merchandises, and it is necessary for them to maintain their thoughts new. But more significantly, consumers can purchase new merchandises in the supermarkets, which can do a colourful life.
Finally, because there are merely a few members in the industry, houses can easy develop their graduated tables, which can take down their cost of operating expense. Hence, the monetary value they give to consumers may be lower than other topographic points. Harmonizing to Tesco ( 2008 ), “ The OFT estimations that food market monetary values have fallen by over 7 per centum in existent footings between 2000 and 2005 ”, and the past three old ages, consumers have saved more than ?3 billion with this action. Hence, consumers can have a lower monetary value in supermarkets due to the scale economic sciences. Furthermore, kinked demand curve is another characteristic of oligopoly.
Harmonizing to Anderton, ( 2007 ), houses that are run based on a Kinked demand curve will maintain the monetary value of merchandises unchanged when rival higher its monetary value, but will cut down its monetary value when there is a monetary value war, as the figure blow shows. For illustration, Asda ‘s CEO said that his shops would cut down goods monetary value in 2008, similarly, Tesco has reduced its monetary value by ?170 m that twelvemonth ( Sibun, Jonathan & A; James Hall, 2008 ). Obviously, kinked demand curve is a good theory for consumers, because consumers can buy goods by a lower monetary value when a monetary value war started. In fact, it is hazardous for one house to alter its monetary value. Harmonizing to Anderton, ( 2007 ), change monetary value will hold a possible menace for houses to lose their market portion and net incomes, so it is better for houses to maintain monetary value stable. This gives oligopoly another characteristic -price stableness. Therefore, monetary value in the oligopoly market will keep at the same degree, it is called Price rigidness in economic ( Anderton, 2007 ), which in general benefits the consumers.
( Dennis W, Carlton & A; Effrey. M,2000 )
On the other custodies, there are, nevertheless, still some drawbacks of oligopoly, such as puting a high barrier for other houses to come in the market, destructing local community civilization, and presenting a monetary value menace to consumers in collusion.
First of wholly, as one of the features of oligopoly, the barriers to come in the market are excessively high. Therefore, in Britain supermarket industry, it is difficult for smaller concern to come in the industry due to the stable market portion taken by the four giants. As Anderton ( 2007 ) provinces, houses will restrict the competition in order to increase market portions instead than alter its merchandise monetary value, which is hazardous for the companies. Harmonizing to BBC NEWS ( 2006 ), the four giants ain half of the UK ‘s stores. What ‘s more, due to new large supermarkets unfastened, two hundred independent new convenience shops forced to shut down from June 2004 to June 2005 ( BBC NEWS, 2006 ). And because of that, “ many people had excessively few big supermarkets to take from in their local country ” ( BBC NEWS, 2008 ).
Further more, although supermarkets can convent some busy consumers ‘ life, some little concern in local communities may be destroyed by the invasion of supermarkets into the convenience shop sector. The civilization of the local communities will be swallowed by commercialisation, and may do a negative consequence to traditional civilization event ( BBC NEWS, 2008 ).
Finally, harmonizing to Anderton ( 2008 ), when the big companies in the oligopoly market collude together from a trust, a conniving oligopoly will existed. In this state of affairs, large companies normally colluded together and make an understanding, which can maximise their unnatural net incomes. In order to accomplish this end, they may cut down their end product and raise goods monetary value. However, it will harm the merchandises provider to these supermarkets giants and the consumers.
To reason based on the UK supermarket state of affairs; an oligopoly market has both positive and negative influences to the consumers. To see the benefits of oligopoly bring to consumers merely, it is good to the consumers with a lower monetary value, legion advanced merchandise picks and salvaging consumers ‘ cherished clip. Therefore, it is suggest that companies should get down a scheme which is satisfy the consumers and benefits consumers, avoid to do some incorrect programs which may increase their net income in a short tally but lose their consumers in a long tally. Therefore, while doing more net incomes, companies should pay more attending to the consumers ‘ advantages, such as go forthing topographic points in local communities for other little independent shops to last, cut down the possibility to do a illegally monetary value rise. It is believed that, an oligopoly market may hold many possible values to non merely the economic growing but besides consumers ‘ life.