The paper “ Competition in the Australian Grocery Retail Sector” is a spectacular example of the assignment on business. Numerous complaints in the recent pasts have been reported because of the competitiveness of the retail grocery sector in Australia. Woolworth and Close supermarket dominate the business sector with more than 70% in market share and thus dictate the sector (Australian Economic Review Policy Forum, 2004). To understand better the nature of competitiveness within the retail grocery sector, it is important to analyze the type of competitive markets, which are either imperfect or perfect competitive models (Smith, 2004).
In theory, the perfectly competitive market has numerous sellers while an imperfect market has fewer sellers that dictate the market prices (Hoag and Hoag, 2006). This means in a competitive environment, sellers and buyers have more freedom in dictating the price and choosing the stores, which they can purchase their groceries or products. Hence, in a competitive market, there are no barriers to entry or exit (ACCC. 2008). Conversely, imperfect competition is those markets that cannot fit the requirements and policies of perfect competition (Baumol and Blinder, 2007).
The imperfect competitive businesses are either monopoly or oligopoly. A monopoly market is when the business is controlled by only a single business while oligopoly is when few businesses dominate the market resulting in either cooperation between the few businesses for the market or competition existing between the few businesses. In the retail grocery sector in Australia, two companies dominate the market meaning they can easily manipulate and dictate the price of products. To understand whether a market is perfect competitive, four criterions will be utilised to analyse the retail grocery sector (Griffin, 2010).
These criterions are presences of large number of small firms, identical goods, perfect resource mobility and perfect knowledge. A perfect competitive business should have numerous small firms, which cannot dictate the market. In the case of Australia retail grocery sector, there are two major suppliers, which are Cole and Woolworth and they are commanding more than 70% of the market (ACCC. 2008). This makes it an imperfect competitive market environment. Another aspect associated with perfectly competitive market is that identical goods are sold. In this case, ‘ identical’ can be viewed in terms of what the goods are and can also be seen in terms of branding.
The two major stores, Cole and Woolworth, brand their products and thus they are not identical meaning that the requirements of identical goods is not championed thus it is imperfect business environment. Perfect resource mobility is another aspect that is associated with perfect competitive environment (Griffin, 2010). In such scenario, entry and exit is free and easy. Moreover, no restrictions in terms of policies, government legislations and other business restrictions are in place.
This means that the environment is easily accessed by any business (ACCC. 2008). Retail grocery sector in Australia is difficult to enter because of infrastructure and structures in place that these two major grocers have commissioned (Hoag and Hoag, 2006). Due to imperfect environment, it is difficult for a new entrant because Cole and Woolworth may introduce unhealthy business strategies that can prevent the new entrant from operating optimally and also may influence suppliers in their decisions (Mankiw and Taylor, 2006). Commonly, business places restrictions to suppliers and if they fail to adhere to the restrictions may result in term of contracts.
The last component is perfect knowledge in that consumers know and have knowledge of product prices (Griffin, 2010). Customers in the retail grocery sector know the price of products but since two major dictate the prices, the prices remain the similar. Moreover, since they brand their products, it is difficult for consumers to choose other products rather than products from specific stores. This also means that the market environment is imperfect.
ACCC. 2008. Report of the ACCC inquiry into the competitiveness of retail prices for standard groceries. Available on the web at www.accc.gov.au
Australian Economic Review Policy Forum. 2004. Competition Issues in the Australian Grocery Industry, vol. 37, no. 3
Bauer, P. 2012. West African Trade: A Study of Competition, Oligopoly and Monopoly in a Changing Economy. London: Routledge
Baumol, W., and Blinder, A. 2007. Microeconomics 2007: Principles and Policy, 10th Ed. London: Cengage Learning
Chen, J. 2009. Monopoly, Competition, and Productive Efficiency. Toronto: Carleton University
Food System Research Group. (2009). Structural Changes in Food Retailing. Available at http://www.aae.wisc.edu/fsrg/publications/Monographs/!food_retailing2009.pdf
Griffin, R. 2010. Management, 10th Ed. London: Cengage Learning
Hoag, A., and Hoag, J. 2006. Introductory economics, 4th Ed. New York: World Scientific
Mankiw, N. 2011. Principles of Economics, 6th Ed. London: Cengage Learning
Mankiw, N., and Taylor, M. 2006. Economics. Sydney: Cengage Learning EMEA
Smith, R.L. 2004. Policy Forum: Competition into the Australian Grocery Industry. The Australian Grocery Industry. The Australian Economic Review, vol. 37, no. 3, pp. 306-310
Taylor, J., and Weerapana, A. 2009. Principles of Microeconomics: Global Financial Crisis Edition, 6th Ed. London: Cengage Learning