The Retail Grocery Sector in Australia Came Under a Lot of Criticism in the Past Couple of Years Because of the Rising Prices of Goods. One Issue in the Debate Was the Role of Competition in the Sector. the Australian
In its report of competitiveness of retail prices for standard groceries, the Australian Competition and Consumer Commission (ACCC, 2008) stated that “Australian food prices have been increasing at a rate greater than the CPI since 1990. Among a number of comparable OECD countries, Australia is the only economy that exhibits that feature”. The criticism is on the competition within this market. In this essay, I will be discussing about Australian imperfect competition in the retail grocery and its implications to the consumers; and the vertically integrated supply chain employed by the Major Supermarket Chains (MSCs) and the entry barriers which these systems bring along. A payoff matrix is also shown in order to develop entry strategy for a new competitor. 1. Is Australian retail grocery market perfectly competitive?
Before determining whether Australian retail grocery market is “perfectly competitive”, a sound understanding of the term should be in place. According to Hubbard et al. (2013), a perfectly competitive market is one that “meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products and (3) no barriers to new firms entering the market”. According to Keith (2012), Australia is one of the most concentrated in the supermarket retail sector in the world. In this case, the two supermarket chains Coles and Woolworths account for about 80% of the packaged groceries sold in Australia (Smith, 2006). The retail grocery market is dominated by these two giants, which eventually creates a duopoly/oligopoly existence, making the whole market not at all “perfectly competitive”. There are many buyers, but there are not too many sellers! Taking a look at the retail market, it is easy to notice that Coles and Woolworths have a lot of different brand extensions. For example, credit cards, liquor, insurance, etc. They even have affiliation with Shell and Caltex respectively, that a customer will get 8 cent discount per litre of
Before determining whether Australian retail grocery market is “perfectly competitive”, a sound understanding of the term should be in place. According to Hubbard et al. (2013), a perfectly competitive market is one that “meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products and (3) no barriers to new firms entering the market”. According to Keith (2012), Australia is one of the most concentrated in the supermarket retail sector in the world. In this case, the two supermarket chains Coles and Woolworths account for about 80% of the packaged groceries sold in Australia (Smith, 2006). The retail grocery market is dominated by these two giants, which eventually creates a duopoly/oligopoly existence, making the whole market not at all “perfectly competitive”. There are many buyers, but there are not too many sellers! Taking a look at the retail market, it is easy to notice that Coles and Woolworths have a lot of different brand extensions. For example, credit cards, liquor, insurance, etc. They even have affiliation with Shell and Caltex respectively, that a customer will get 8 cent discount per litre of
References: Australian Competition Law. (2010). Competition. Retrieved February 28, 2013, from http://www.australiancompetitionlaw.org/glossary/competition.html Díez-Vial, I Economics Online. (n.d.). Growth, mergers and acquisitions. Retrieved march 1, 2013, from http://www.economicsonline.co.uk/Business_economics/Growth_mergers_and_acquisitions.html Hubbard et al Jones, E. (2006, April). The Australian retail duopoly as contrary to the public interest. Retrieved March 1, 2013, from http://sydney.edu.au/arts/political_economy/downloads/JonesRetailDuopoly&PublicInterest406.pdf Keith, S Kruger, C. (2012, November 2). Biggest winner of price wars: supermarkets. Retrieved March 3, 2013, from http://www.theage.com.au/business/biggest-winner-of-price-wars-supermarkets-20121102-28olq.html OECD Smith, R. L. (2004). The Australian Grocery Industry. The Australian Economic Review , 304-310.