The paper "Tesco UK and Oligopolistic Competition" is a wonderful example of a case study on macro and microeconomics. In the UK, the food and drink retail sector is the largest, and in 2003 it contributed approximately 9% of the total GDP (Harvey, 2000, p. 16). In recent years, dedicated research has been conducted in the UK supermarket industry owing to the rising concerns from investors that big supermarkets are colluding to bar new entrants from the market (Lawyer and Yang, 2003, p. 119). However, is imperative to mention that UK supermarkets exhibit numerous characteristics of an oligopoly than of any other market structure.
This report, therefore, critically analyses Tesco Supermarket in an attempt to establish whether its characteristics and behavior concur with the economics of oligopoly. Tesco operates more than 2,318 stores that are spread worldwide. However, its largest market is in the UK whereby it operates under the umbrellas of Extra, Superstore, Metro, and Express (Tesco, 2011, par. 6). Over the years, Tesco has expanded its products range to incorporate non-food products as well as the development of its own labels (Tesco, 2011, par.
6). Tesco UK and oligopolistic competition Tesco operates in an oligopolistic market structure. An oligopolistic market structure is a situation whereby an industry is dominated by a few firms whose products are closely related. According to Ismail (2008, p. 26), though the UK supermarket industry consists of several firms, only three that is Tesco, Sainsbury, and Asda dominate the market; hence creating oligopolistic competition. Moreover, in oligopolistic competition, there is a high level of market concentration. Lawler & Yang (2003, p. 119) postulate that it is important to calculate the concentration ratio to determine the extent to which the leading firms in oligopolistic competition dominate the market.
According to the Competition Commission in the UK oligopolistic market structure occurs when the top five firms assume more than 60% of the total market in terms of demand and supply (Ismail, 2008, p. 26). From the table below the top three and top five firm’ s market concentration is 63.9% and 79.5% respectively.
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