tesco oligopoly market structure

States are owned by just six massive corporations: NBC Universal, Viacom An oligopoly is a term used to explain the structure of a specific market, industry, or company. Extent to which UK supermarket is oligopoly A study by the National Consumer Council released in December 2006 showed that some supermarkets were undermining efforts to tackle health inequality, and that many economy lines were high in salt, fat and sugar. As mentioned above, some of these markets require large economies of scale for firms to be viable. These services are available to UK residential consumers and marketed via, Economists have described it as Jekyll and Hyde Tesco. Using this phrase, we can ask whether the Competition Commission has seen the Jekyll Tesco or Hyde Tesco over the 17 month investigation of groceries markets which continued until 30. This could damage independents and smaller chains, and in turn damage consumers. Oligopoly is the market structure where few large market firms compete with each other. More recently, and encouraged by government initiatives, supermarket chains have begun to set up stores in deprived areas, but this is not necessarily good news. A game occurs when there are two or more interacting decision-takers (players) and each decision or combination of decisions involves a particular outcome (pay-off.) These services are available to UK residential consumers and marketed via and through Tesco stores. An Oligopoly is a group of leaders in a certain market. I would like to begin by pointing out the major types of market structure, and then focus on the oligopoly market structure, and its behaviour. Then, they must conceal their price-fixing activities from the general public. The Office of Fair Trading also mentioned price cuts as a concern: aggressive pricing by supermarkets may be distorting competition.. Likewise, a report by the New Economics Foundation (NEF) from 2005, Clone Town Britain, found that chain retailers are damaging to the local economy, social inclusion and local identity. (See Figure 3). In 2000 the Department of Health actually recommended that local authorities should discourage the provision of new supermarkets over 1000 square metres outside existing town centres in recognition of the value of local shops to low income households. At current, a supermarket can develop a site it already owns without approval from the competition authorities. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Comparing Oligopoly to Monopoly and Duopoly, The Role of Governments in the Existence of Oligopolies. Note that producer surplus flows through to the owners of the factors of production, unlike economic profit which is zero under perfect competition. Please see the food poverty page and Sustain's Food Access Network for more information on this. More relevant is that about a third of consumers have three superstores within relatively easy reach of them. particular kinds of situations. The most significant threat to the existing balance of an oligopoly is the fact that each business in such a structure is incentivized to sabotage the other businesses for their own financial benefit. 3. Factors that can contribute to the existence of This leads to competition in the oligopoly market. Legal barriers are a way that governments play in barriers to entry. The music industry is an oligopoly The competitive market structure an organisation belongs to is determined by the nature of their product, the number and size of other firms in the market and the entry and exit conditions of that market. Farmers have to bear the burden of unfair trading practices imposed by supermarkets, especially Tesco, which is a name that comes up time and time again, during farmers complaints. The pay-off is measured in terms of years in prison arising from each of their choices and this is summarised in the table below. The degree of market concentration is very high. The third point is simply, economies of scale. The data surely confirms that there is an increase in concentration of wealth as can be deduced from the taking over of stores and the increase in market share of store sales. In a Monopoly Market Structure, there is only one firm prevailing in a particular industry. Also there are sunk costs and natural cost advantages, which may prove to be successful barriers. Oligopoly is a type of Market Structure. The concentration ratio measures the market share of. While individually powerful, each of these firms also cannot prevent other competing firms from holding sway over the market. Although Tesco has been criticised for acquiring too much of the market, by forms of hostile behaviour, and causing companies to be forced to close, it is easy to clearly see the benefits that consumers are benefiting from Tescos oligopoly. They have a simple choice, either to confess to the crime (thereby implicating their partner in crime) and accept the consequences, or to deny all involvement and hope that their partner does likewise. In oligopoly market structure each firm needs to consider that "how its actions affect the decisions of its relatively few rivals". . A few took into account what the market price was but none was able to calculate marginal costs and revenues. Larger firms are also able to borrow money at cheaper rates, because they have more assets and so it is less risky to lend to them, and feel more secure to lend to them. What Are The Effects Of Tescos Oligopolistic Market Structure, On Both Consumers And Producers? In the upper part of the D, AR curve is more price elastic (sensitive to price changes) than the lower part. States is likewise dominated by Chrysler, Ford, and GMC. Again, the source of the data is The Office of Fair Trading, and is not subject to any suspicion of bias. Oligopolies exist worldwide and may, in fact, be increasing in prevalence over time. Appealing to customers of all income ranges is also a main reason to the leap in growth. For example, Tesco Financial Services and Tesco Express convenience stores both operate in several international markets. It is more price elastic because of the assumption that at the higher price, firms will not follow but at the lower price, other firms will cut prices too. There are no barriers to entry whatsoever. Oligopoly The simple characteristics of these market structures can be seen in Figure 1 (right.) The common ones are purchasing (bulk buying of materials through long-term contracts), managerial (increasing the specialization of managers), financial (obtaining lower-interest charges when borrowing from banks and having access to a greater range of financial instruments), and marketing (spreading the cost of advertising over a greater range of output in media markets). In an oligopoly market structure, there are just a few interdependent firms that collectively dominate the market. The result of these practices is when suppliers raise prices for other buyers (including independent shops) as a knock-on effect. Using the profit maximization rule, Marginal Cost = Marginal Revenue, anywhere on the vertical MC curve works. The market share of the cigarette industry is shared amongst four top companies. The source of the information in figure 8 is sourced directly from Tescos website. Its important to relate the above graph to Tesco. This can be seen in comparison to HMV selling the same CD for around 20(14.20). The entrepreneurs added up their costs of production and then added what they thought was a fair profit margin. Should Oligopolies Compete or Collaborate? Tesco has also upgraded its software through Business Systems UK Ltd. Whilst the upgrades were being performed, The Times made investigations and wrote in the paper: Tesco, the UKs largest supermarket retail organisation, has chosen Nice university quality management software and the NiceLog digital voice recording and screen capture platform which automates and optimises its approach to customer service and employee development through consultancy and implementation of a recording and quality management solution all promoting a more advanced Tesco.. Motive comes from interdependent competition and opportunity arises from access to plentiful resources. Another important characteristic of an oligopoly is interdependence between firms. However, if they are a few big firms with similar costs and rising demand, the agreement is likely to last. Oligopoly is defined as a concentrated market. experienced outright collusion by an oligopoly when six book publishers engaged Thus independent record labels, which are not affiliated with these large Perfect competition is a market in which there are many sellers and many buyers. In this market there are few numbers of Interdependent firms which dominate market. According to the 2000 Competition Commission Report the buying power of the major supermarkets actually means that 'the burden of cost increases in the supply chain has fallen disproportionately heavily on small suppliers such as farmers'. The marginal revenue recall, falls at twice the rate of the average revenue (demand) curve. The two main approaches to understanding oligopoly are The Kinked Demand Curve and the Game Theory., USING THE KINKED-DEMAND CURVE TO UNDERSTAND OLIGOPOLY. A barrier to entry method is probably the behaviour that is exhibited most widely, not only by oligopolies but also by monopolies. Is Lidl an oligopoly? In oligopoly market structure each firm needs to consider that "how its actions affect the decisions of its relatively few rivals". Sainsbury which owns 16.3% of the UK supermarket shares and Morrisons which owns 11.5%, this means the Above, I mentioned that a common behavioural tendency that is exhibited by oligopolistic firms is interdependence. Table of content 1 Types of Market Structures 1.1 1] Perfect Competiton 1.2 2] Monopolistic Competition 1.3 3] Oligopoly 1.4 4] Monopoly 2 Solved Question on Market Structures publishers in 2012. Since all the units are the same price, each new unit would have the same average revenue, so the marginal revenue = total revenue. Like any firm with market control, an oligopoly charges a higher price and produces less output than the efficiency benchmark of perfect competition. The response by the Office of Fair Trading (OFT) was to introduce a voluntary code of practice, to be entered into by the large four supermarkets. Their market share gives them a level of flexibility between store formats and over product pricing, and control of supply chains. et al, 2008:298). Though there are many companies operating chain retail shop. This is where a company increases its share in the market through internal growth and taking over other firms. This way, the firm will maximise their profits. specific industries and their oligopolies: There are a few interdependent firms that cannot act independently. First the team explores the pure competition market structure through the analysis to Fiji Water Company. The report argued that the social and economic benefits of diverse forms of retail should be protected. Tesco moved ahead of Home Depot during 2007, following the sale of Home Depot's professional supply division and a decline in the value of the U.S. dollar against the British Pound. These companies are technically competitors in their industries, but in The naive reaction to oligopolies is that they invariably stifle competition and artificially inflate prices. a monopoly. In fact, Oligopoly tends to be the worst efficiency offender in the real world, because: Oligopolies tend to increase the concentration of wealth and income too. The equilibrium in the Prisoners Dilemma occurs when each player takes the best possible action for themselves given the action of the other player. Like with the supermarket chain there is the oligopoly of Tesco, Asda, Somerfield and Sainsburys. Auto manufacturing in the United A decision that Sainsburys make will affect Tesco, and vice versa, so therefore, interdependence is always exhibited as a behavioural tendency, in the oligopolistic market. One of the outcomes, of increases in the concentration of wealth and income, is the closure of independent local stores as stated on The Office of Fair Trading website, where it says that Supermarkets entry into the convenience store sector may force local stores to close. There is a lack of competition. This is stated in The Office of Fair Trading website; Supermarkets, entry into the convenience store sector pushes prices down. Many regard Tesco as a great British success story built on a fearsome determination to win in a competitive market, to the great benefit of consumers. The chart below shows the changing market share for the major grocers over recent years. An oligopoly market is characterized by many buyers and few sellers. industries that frequently exhibit characteristics of oligopoly: Here are some more details on The diagram would be like the monopoly profit maximizer. Because this assignment relates directly to oligopoly, I will now analyse the oligopoly market structure in more depth. The highest net profit observed over the 9 year period, occurs in 2005 with a 24.18% increase in net profits. The prisoners could do better by both denying, but once collusion kicks in, each prisoner has an incentive to cheat. According to the Competition Commission's report on the grocery market from 2000, the big four chains were persistently selling products at below market price. The biggest fours, Tesco (24%), Asda (13%), Sainsburys (13%) and Morrisons (12%) are holding the 62% of the whole UK grocery market jointly (Bailey, 2014). The major market forms are: The simple characteristics of these market structures can be seen in Figure 1(right.) After analysing Tesco and its financial status, I think it is important to analyse a negative aspect that I discussed earlier and incorporate with the ideas derived from information about Tesco. However when a supermarket squeezes its supplier, it merely reallocates profit margin from supplier to retailer and there should be no assumption that the retailer's saving will be shared with consumers. An example would be the intergovernmental organization known as the Organization of the Petroleum Exporting Countries (OPEC)no one government has the high-level power to prevent this group of states from colluding. ), OLIGOPOLIES CHARACTERISTICS AND BEHAVIOUR, Oligopolistic businesses tend to be assorted and also tend to exhibit several behavioural tendencies. An oligopoly is most likely to have a kinked demand curve. Firms operating in an oligopoly market with a few competitors must take the potential reaction of its closest rivals into account when making its own decisions. Monopolistic competition is a common market structure. The submission by the Association of Convenience Stores to the Competition Commission grocery market inquiry in 2006 found that such practices were continuing. A monopoly is typified by a single competitor and widespread market control. As seen from figure 10, in 1998 the earnings per share were 8.12 pence and have risen steadily to a share price of 22.36 pence, making a 64% increase in share prices over the 9 year period. The figures in the chart include 52 weeks/12 months of turnover for both sides of the business as this provides the best comparative. Marginal Revenue the revenue earned by selling one more unit. Earnings per share are calculated by using the following formula: The earnings per share have increased steadily since 1998. There are no barriers to entry whatsoever. It is very difficult for new businesses to start up. Figure 8 (above) illustrates the percentage that each firm holds in the market. This behavior can be seen in the diagram below; there is a stickiness in price as firms produce the same output when marginal cost is at Marginal Cost Upper or Marginal Cost Lower. et al, 2008:298). Technically, there is not a maximum number of firms that can exist in an oligopoly, but as a rule there have to be so few powerful firms in an industry that anything one firm does has a major effect on the decisions of the other firms in that industry. However, this is not just a question of personal choices, but of social circumstances, with low-income communities far more likely to suffer from diet-related illnesses, and an estimated four million people in the UK are unable to obtain access to a healthy diet. By late 2004, it was widely regarded as a major competitive threat to traditional high street chains in many sectors, from clothing to consumer electronics to health and beauty to media products. Small independent stores and suppliers, and ultimately consumers, are paying a direct price in the face of unfair competition. Its report "High Street Britain: 2015", released in January 2006, predicted a bleak future for independent shops. Oligopoly is the most complex market structure, characterised by a few large firms which dominate the industry. 1. The result of these higher prices for consumers is higher profit margins for the firms involved in the oligopoly. Economies of scale characterize a production process in which an increase in the scale of the firm causes a decrease in the long run average cost of each unit. Mikey HolderGCE A2 ECONOMICS UNIT EC4CTescos Oligopoly.

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