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Reasons for the tendency of the industries toward oligopoly

Nowadays, as the speedy development of society and commercialism, there is a inclination that all the industries are toward oligopoly. The Oligopolistic market can be classified as one type of amiss competitory market. Particularly, it occurs often in the extremely developed economic system. In Britain, the supermarket industry can be seen as a premier illustration of Oligopoly ( Oligopolywatch, 2010 ) . Chiefly, refer to Anderton ( 2008:322 ) ; there are three natures to place this market construction. First, there are a little figure of big Sellerss ruling the market and they offering the similar or indistinguishable merchandises. An early research by US authorities indicates that, in the terminal of May 2008, there were about 6,336 supermarkets and superstores in UK, the entire value earned by them was approximately 97.9 million lbs, it accounted for 72.6 per cent of the UK food market market. However, the concentration grade of the British food market market is highly high, it is about 76 per cent of the market portion is gained jointly by the four largest supermarket ironss in UK- Tesco, Asda, Sainsbury ‘s and Morrison ( Flexnews, 2010 ) . As a consequence, the food market market is largely dominated by the four big supermarket ironss. Second, Sellerss in the oligopolistic market must be mutualist ; hence, the big houses in the market effort to make appropriate reactions from challengers ‘ behaviour and determinations about altering monetary value and end product. For illustration, in 2001, Tesco announced that they would increase about 40 per cent of the monetary value of several drugs. Soon, Asda declared the similar determination of escalation as good ( BBC, 2008 ) . As the most powerful tool for analysing the oligopolistic behaviour, the game theory is widely concerned in the Oligopolistic market ( Tutor2U, 2010 ) . The game theory may be defined as doing the economic determination through the mathematical attack, which is used to analyse the behaviours of mutualist houses in the competition ( Answers 2010 ) . Third, it is hard to entry the market in the long term because several high barriers exist. Harmonizing to the theory of Five Force Model put frontward by Michael Porter, the ground that contributes to the being of barriers is the big economic systems of graduated table ; hence, the competitory border would be gained by Sellerss through supplying merchandise at a lower monetary value ( Businessballs, 2009 ) . The ferocious competition in the market is a major barrier to entry. In an article by Daniel Palmer, in order to better the fight and economic systems of graduated table in the industry, Waitrose and Booths have decided that they would fall in a new buying confederation and offer merchandises at lower monetary value ( Ausfoodnews 2008 ) . Mention to Hall ( 2008: 132 ) ; other entry barriers include legal limitations, high cost, and trusts. To sum up, because of all conditions of oligopolistic market can be satisfied in the UK supermarket industry, it is evident that the UK food market market can be considered as the oligopolistic market. Based on the theories relevant to oligopoly and current intelligence, both the positive and negative sides of ingestion would be evaluated and discussed with related instances ; the two chief benefits mirrors the positive ingestion state of affairs in UK supermarket industry currentlyi??one is the convenient ingestion climate the market creates, the other is the lower monetary value of the merchandises that consumer can bask in a short term. The phenomenon of undue monetary value which is disadvantageous to consumers will be shown every bit good.

To get down with, the most dramatic benefit for consumer is consumers can bask the convenient and efficient ingestion atmosphere. First, there are two major methods that houses compete with each other in the oligopolistic market- contending the monetary value war and get downing non-price competition. Because firing monetary value war can non maximise the unnatural net income in a long tally, most of the oligopoly houses with the strong accent on the non-price competition. Harmonizing to the Business lexicon ( 2010 ) , non-price competition may be defined as houses concentrate on promotional schemes, in order to foreground the typical advantages and features of their merchandises to pull the consumer to purchase merchandises. The publicity schemes would be planned by each house based on the market mix analysis. Harmonizing to Answers ( 2010 ) , the market mix is the elements of a house ‘s selling scheme, which is designed to run into the demands of its clients, such as merchandise, topographic point, publicity and monetary value. Following, the assorted publicity schemes created by UK supermarkets are good to consumers. For case, with the popularisation of the Internet, more and more consumers purchase goods through online shopping. As can be seen from the diagram below, it reveals the increasing population of consumer shopping online in the past decennaries. In add-on to the online supermarket, other promotional schemes like twenty-four-hour shopping service provided in many supermarkets are welcomes in UK. Besides, a batch of supermarkets would wish to establish new merchandise with aggregate media advertisement, it is a direct attack that offers the information about the latest merchandises to consumers instantly ( Tutor2U, 2010 ) . In short, the assorted promotional schemes bring to consumer an efficient ingestion environment.

Beginning: Tesco ; Coriolis Analysis

Buying merchandises at the lower monetary value is another typical advantage for consumers, yet this benefit simply can be gained in a short clip when the supermarkets fire the monetary value war, such as discounting or cut downing the monetary value. The lower monetary value would pull more consumers to buy the merchandise ; hence, the purpose for get downing monetary value war is to gain net income through increasing the measure of sale. Harmonizing to the intelligence from Timesonline ( 2010 ) , Asda announced that, consumer could salvage about one hundred and 50 million lbs from Christmas discounting ; besides, the other four biggest supermarkets made similar price-discounting determination as good. In brief, although the monetary value war is avoided by the oligopolistic house, it can help consumer salvage money in a short clip.

Despite of the outstanding benefits, the chief disadvantage of oligopolistic market to consumers is the monetary value charged by oligopolistic houses may be unacceptable and unreasonable for consumers. First, the Oligopoly is the amiss competitory market ; there are two sorts of competition issue. The 1 is the competitory oligopoly ; hence, the oligopoly houses should vie with each others. The other type of oligopoly is collusion. Harmonizing to Anderton ( 2008:324 ) , collusion, which means oligopoly houses in the monopoly place come to an understanding about monetary value repair, in order to restrict the competition and derive the soap net income jointly. The monopoly monetary value will be charged when oligopoly houses conspire. Cartel is the one attack to accomplish formal collusion ; nevertheless, it is illegal in Europe. For case, several largest supermarkets in Britain colluded, and formed a trust about bear downing the monetary value for day-to-day merchandise. The statistics shows that, it cost consumers two hundred and seventy million lbs ( Telegragh, 2007 ) . The collusion is disadvantageous for consumers ; it will damage the competition every bit good. Actually, the silent collusion is allowed to be existing in the market. The most common signifier of silent collusion is the monetary value leader. Mention to Baumal ( 2005:218 ) , the monetary value is charged by price-leading house and the other fixes the monetary value follow it. The monetary value leader has both positive side and negative side. On the one manus, the price-leading house is able to foretell the other houses ‘ reactions after declaring the monetary value determination. On the other manus, it would take to other houses can non be benefit, because the monetary value leader would reenforce its net income more easy. As a consequence the unjust monetary value determination would be made by the price-leading house ; nevertheless, other houses can non bask the public assistance every bit. Therefore, the agreement of inexplicit collusion might be broken down easy. For this ground, the oligopoly houses have aspiration that the monetary value could be maintained at an unchanging degree ; because the oligopoly houses are the monetary value compositors, they have powerful abilities to repair the monetary value. Undeniable, the stable but high monetary value can be controlled by the oligopoly every bit good. Hence, harmonizing to Anderton ( 2008:323 ) the monetary value rigidness is considered a necessary feature in oligopolistic market. Typically, the kinked demand curve theoretical account, which built by Paul Sweezy, can absolutely explicate the phenomenon of the monetary value rigidness. Based on Anderton ( 2008:328 ) , the theory of kinked demand curve theoretical account suggests that when a rival fires a monetary value war, the house would slake monetary value, yet the monetary value would be maintained if a rival increases its monetary value. However, one important failing of the theoretical account is, it can non supply a sensible account of how to bear down the original equilibrium monetary value, and it would be doubted by consumers. To sum up, because the oligopolies have capablenesss to repair and command the monetary values and maximise the net income, due to the unreasonably higher monetary value is charged.

In drumhead, through analyzing and analysing the classical illustration of oligopoly market- the UK food market market, the two benefits to consumers can be gain in the market. The non-price competition focused on the promotional schemes ; hence, it is helpful in making the convenient ingestion atmosphere. Besides, consumers can bask the lower-price merchandises when supermarkets fire the monetary value war. However, the monetary value might be unacceptable, because the oligopolistic houses can bear down the monetary value and gain the monopoly net income.