The paper "Milk Price War - Woolworths and Coles" is a perfect example of a micro and macroeconomic case study. Stiff competition between leading market forces takes different forms were market leaders try to outdo each other in terms of product quality and the added value that a company’ s product offers its customers. These business duels sometimes revolve on product pricing in a single market segment. An example of the price war is apparent in the raging war between Australia’ s leading supermarket chains Woolworths and Coles. In response to Coles's decision to cut its milk prices in line with the ‘ Down Down’ strategy, Woolworths followed suit citing compulsion.
The decisions to offer their supermarket brand milk has adversely affected milk prices. This move is prompted by the fear of losing customers to Woolworths and Cole’ s retail chains. These developments have elicited a debate on the present and most importantly, the future impacts on consumers and major stakeholders in dairy farming. Additionally, the effects of the downturn in dairy farming due to the price wars have brought to the fore the level of the government’ s commitment to protecting Australian industries.
Market structures determine the business activities that competing companies operate within. It is apparent that the price wars are a result of the prevailing market structures. Coles and Woolworths are part of a large market that has different structures namely perfect competition, imperfect competition, monopoly and oligopoly. Markets with perfect competition have efficient production of goods and producers incur the least costs making it unrealistic. Several factors influence the market in imperfect competition. There are different structures under this namely monopoly where one firm controls the market and sets prices such as Woolworths and Coles.
It is important to note that monopolistic competition as seen in the case of the two companies is most common for large companies. The competing firms are involved in a similar business and provide similar products. Product differentiation makes the main players in such market structures strive to substitute their competitors’ products. The graph below shows a monopolistic market structure.
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