Question 1The retail grocery market in Australia is not a perfectly competitive. It is very hard for industries to satisfy perfectly competitive market requirements in the world we live. Many markets structures are monopolistic or oligopoly in nature. Perfect competition explains markets that the suppliers are not large to take control of the market in a way that they can set prices of non differentiated product. The competition and commission in Australia estimation that Coles and Woolworths accounted for about 70% of packaged grocery sales and 50% of fresh food product sales, implies that these retail groceries are dominant in the market.
Therefore the market is not a perfect one (MU: IAER 56). In perfect competition it is believed that all consumers and producers need to have perfect information about the commodities quality and prices. For the Australia grocery market this is not the case, the prices of the goods keeps on increasing because the retail groceries are large and can easily set the prices of their goods. The products in the perfectly competitive market need to be homogeneous. the products characteristics need to be the same across all supplies.
In the Australia grocery sector the products are differentiated, it has packaged products and fresh food products. Its market is not a perfect competitive one. According to (M. U: IAER 103), perfect competitive market is characterized by many buyers and sellers who are willing and able to buy and sale the products at a given price. In Australian grocery sector there has been criticism a bout the rising prices of their goods. The buyers are not happy with the market prices implying that many buyers are not willing and able to buy the commodities.
The market therefore is not a perfect competitive one. In perfectly competitive market the price of the commodity is equivalent to the firm marginal cost, buyers are charged fair price. This is not what Australian grocery market is experiencing. The market is criticized by rising prices of the commodities, a clear indication that the market is not a perfectly competitive one. It is free for firms to enter or exit the market in perfectly competitive market. There are no barriers to firms that want to either join or exit the market.
In Australian case the market is dominated by two firms, there dominance restricts other firms to enter into the market thus disqualifying the sector to fall under perfectly competitive market. Perfect competition is characterized by several small firms, each producing small percentage of aggregate market product and thus they cannot control the market price. The Coles and Woolworths accounted for about 70% of packaged grocery sales and 50% of fresh food product sales in Australia which is a large percentage of the total product in the market.
Implications to consumerThe assumptions of perfect competition do not apply to the Australian grocery sector thus the sector qualifies to be imperfect competitive market. This implies that the monopsony power may prevail against sellers because they buy a large percentage of aggregate demand. There are often little barriers to market contestability and away from being identical, most markets have many heterogeneous products because of product differentiation.