Economic Analysis of an Oligopoly Market Structure
1. Introduction
1a. Article Summary
In this article Michael Baker discusses the livelihood of small retailers in a market subjugated by the financially dominant oligopolies, Woolworths and Coles. While the small independent retailers in direct competition with Woolworths and Coles provide some competitive respite for consumers, as they encourage competitive pricing, albeit predatory pricing, it is clear that Woolworths and Coles control the supermarket industry in Australia, in the formation of a duopoly. It is evident that Woolworths and Coles engage in predatory pricing in an attempt to eliminate independent retailers from the market. This article discusses recent efforts made by the Australian government and the Australian Competition and Consumer Commission to reduce predatory pricing and, thus, encourage competition in the marketplace in an attempt to relieve the financial strain that would undoubtedly be felt by consumers if the Woolworths/Coles duopoly ruled the marketplace without the presence of independent retailers.
It is clear that these strategies enforced by the government and the ACCC to aid small retailers are not working, as predatory pricing still exists. What is also evident is that several strategies enforced are in contradiction of each other, as some are enforced to protect small retailers, while others increase foreign competition in the supermarket industry, which is certain to negatively impact small retailers and encourage the formation of an oligopoly, or future monopoly market structure.
An example of this is the government initiative to allow foreign entrants into the retail market five years, instead of 12 months as is currently standard, to develop land purchased in Australia. This provides an opening for international retail chains, such as Walmart, to enter the market, allowing them more time to establish multiple locations across Australia.
This is destined to have a negative impact on shopping centre retailers, in particular
1a. Article Summary
In this article Michael Baker discusses the livelihood of small retailers in a market subjugated by the financially dominant oligopolies, Woolworths and Coles. While the small independent retailers in direct competition with Woolworths and Coles provide some competitive respite for consumers, as they encourage competitive pricing, albeit predatory pricing, it is clear that Woolworths and Coles control the supermarket industry in Australia, in the formation of a duopoly. It is evident that Woolworths and Coles engage in predatory pricing in an attempt to eliminate independent retailers from the market. This article discusses recent efforts made by the Australian government and the Australian Competition and Consumer Commission to reduce predatory pricing and, thus, encourage competition in the marketplace in an attempt to relieve the financial strain that would undoubtedly be felt by consumers if the Woolworths/Coles duopoly ruled the marketplace without the presence of independent retailers.
It is clear that these strategies enforced by the government and the ACCC to aid small retailers are not working, as predatory pricing still exists. What is also evident is that several strategies enforced are in contradiction of each other, as some are enforced to protect small retailers, while others increase foreign competition in the supermarket industry, which is certain to negatively impact small retailers and encourage the formation of an oligopoly, or future monopoly market structure.
An example of this is the government initiative to allow foreign entrants into the retail market five years, instead of 12 months as is currently standard, to develop land purchased in Australia. This provides an opening for international retail chains, such as Walmart, to enter the market, allowing them more time to establish multiple locations across Australia.
This is destined to have a negative impact on shopping centre retailers, in particular
References: AAP, 2007, Independent grocers seek stricter rules to limit big chains, The Age, 3 July (online) http://www.theage.com.au/news/business/independent-grocers-seek-stricter-rules-to-limit-big-chains/2007/07/02/1183351124265.html McKenzie, 2002, Green giants are gobbling up the little growers, 8 July, Sydney Morning Herald (online) http://www.smh.com.au/articles/2002/07/10/1026185061953.html Baker, Michael, 2008, Reality check for retailers, 3 May, The Sydney Morning Herald (online) http://business.smh.com.au/reality-check-for-retailers/20080502-2acf.html?skin=text-only