Is UK supermarket sector an oligopoly? IntroductionMarkets act like a controlling agent across every economy. This is because they control how we spend, prices of goods as well as controlling entry and exit in to the market. The market structure enables an organization to determine its prices, output and the amount of profits the business might get. The above study evaluates the statement which shows that UK supermarket industry is an oligopoly. There are four major market structures that include perfect competition, monopolistic competition, and oligopoly and finally the monopoly market structure.
Perfect competition market is one that is comprised of many buyers and sellers who trade similar goods. These do not have much effect on the price prevailing in the market since there are a large number of firms operating in this market (Aumann 1994, pp. 39-50). Customers do not choose what to buy since the products are similar. In order to survive in this market, two factors are important which include having a perfect knowledge and perfect mobility about every product. Perfect knowledge involves having a wider view about economic opportunities available.
Clifton (2007, pp. 137-151) describes that perfect mobility is having a motive if changing an opportunity into a benefit. The monopolistic competition is a market structure that involves many buyers and sellers. These sell their goods with varying prices. This difference in price occurs as a result of presence of differentiated goods. Some of these differences appear in customer segmentation, use of varieties of branding and advertising. A monopoly is the type of an industry that produces products with no close substitutes. This market is also characterized by few barriers of entry and exit in which other people find it difficult to compete with the firm.
Frank (2002) shows that one example is the City cell which had specialized in the production of mobile services in Bangladesh. The company was the first to offer these services and enjoyed the benefits of monopoly until the time Grameen phone was introduced as a competitor. An oligopoly type of market is characterized by few suppliers. Firms operating take a large percentage of market concentration and produce branded products. Characteristics of oligopoly competitionAn oligopoly market is characterized by few sellers and this makes it easy for one seller to be aware of others action plan.
Garegnani (2000) suggests that oligopoly uses the concentration ratio that shows the four major firms in the market through percentages. One example is the cellular phone market in US which showed T-mobile, Verizon, Sprint Nextel and AT & T having 89 percent market share. Firms operate in oligopolistic competition practice restrictive trade barriers in order to increase prices and to restrict production. Most firms operating in an oligopoly market always collude due to influence of unstable markets.
This reason has initiated various legal restrictions placed law enforcers to avoid collusion. Kirzner (1999, pp. 11-38) describes that collusion occurs once firms try to stabilize market prices and oligopoly firms act as market leaders in that they set prices where the rest of the firms follow this is the case of the UK supermarkets that sets prices for its dealers. The market is also comprised of high entry barriers. Some of these barriers include economies of scale, expensive technology and other strategic plans that discourage small firms.
There are few firms in oligopolistic market therefore making it easy for one firm to rule the rest. There are long run profits in oligopoly market as the entry barriers restrict entry of new firms which take up profits.