Effect of Big Supermarkets to Competition - Essay Example

The paper "Effect of Big Supermarkets to Competition" is an excellent example of an essay on business. The growth of the supermarket industry is part of factors that positively contribute to the growth of the economy of the country or state. Their growth possesses both positive and negative implications for the performance of other sectors of the economy. There has been a significant increase in previously existing supermarkets, and this has had both a constructive and unconstructive effect on the competition. Supermarkets have become too big to the extent that they are damaging competition.

When a few supermarkets in an economic setting develop into being the dominating firms, they present the oligopoly form of market structure. Similarly, when the distribution of the market is among the few firms it is extremely concentrated (Oligopoly 2012). To begin with, oligopoly affects competition in the sense that it creates barriers to entry into the market to be too high. Consequently, it makes the level of competition to be minimal. As a result, it openly influences the mindset and brings about speedy development of supermarkets, such that they may not offer excellent services to their clients (Bamford & Munday 2002).

Secondly, due to economies of scale enjoyed by big supermarkets, they are to purchase goods at cheap prices directly from the producers. As a result, they sell at affordable prices. Consequently, this affects the production supply chain within a market setting. Afterward, consumers will be more interested in big supermarkets where they will be paying less for goods and services. The effect of this will be the reduction in the income level of other small supermarkets (Economies of Scale 2012).

Third, supermarkets in an oligopoly are co-dependent. It implies that the action of one big supermarket will have an effect on other big supermarkets. The benefit is that consumers will have access to goods and services at a reduced price. For illustration, Tesco and Asda are big supermarkets in the United Kingdom. In 2003, Tesco announced a price cut of about a hundred million pounds on all their goods. To other big supermarkets, this was an enormous bomb. The following week they embarked on plans meant to cut down prices of their goods. Within an oligopoly, the only existing competition is the war of price, which is not good for competitors at the same level and lower. Clearly, when big supermarkets engage in war prices they damage competition (Oligopoly 2012).

Finally, in a market with big supermarkets, the supply of goods and services is concentrated amongst a few firms. It implies that most of the supplies are held by a few businesses. For instance, in the United Kingdom, four major companies in the supermarket industry dominate the provision in the supermarket. Consequently, dominance gives them the ability to sell their goods and services in plenty at reduced prices. Therefore, this leads to high-profit margins. In addition, when big supermarkets engage in non-price competition to attract their customers, smaller supermarkets will lose their customers to them (Oligopoly 2012).

In conclusion, when supermarkets become big they damage competition within their industry. Factors that corrupt business rivalry include price wars, economies of scale and availability of entry barriers.