Comparison of Oligopolistic Bakers and Small Bakers in UK's Food Industry
It is traditional to divide industries into categories according to the degree of competition that exists between the firms within the industry. There are four such categories. At one extreme is perfect competition, where there are very many firms competing. At the other extreme is monopoly, where there are just one firm in the industry, and hence no competition from within the industry. In the middle come monopolistic competition, which involves quite a lot of firms competing and where there is freedom for new firms to enter the industry, and oligopoly.
Oligopoly occurs when just a few firms between them share a large proportion of the industry. The firms may produce a virtually identical product (e.g. metals, chemicals, sugar, petrol). Most oligopolists, however, produce differentiated produts (e.g. cars, soap powder, soft drinks, electrical appliances).
There are two key features of oligopoly: barriers to entry and interdependence of the firms. Barriers to entry are including economies of scale, network economies, economies of scope, product differentiation and brand loyalty. In interdependence of the firms feature, each firm is affected by its rivals’ actions. If a firm changes the price or specification of its product, for example, or the amount of its advertising, the sales of its rivals will be affected. The rivals may then respond by changing their price, specification or advertising. No firm can afford to ignore the actions and reactions of other firms in the industry.
In the baker market, there are three giant producers, Allied Bakeries (Kingsmill) (a division of Associated British Foods), Premier Foods (Hovis) (formerly British Bakeries) and Warburtons, produce bread for a nationwide market. These bakers are of a similar size and between them account for about 74 percent of the market by value. On the other hand, the market share of the small and medium sized bakers are only 5.4%. So, are the large oligopolistic bakers and the small bakers catering
Oligopoly occurs when just a few firms between them share a large proportion of the industry. The firms may produce a virtually identical product (e.g. metals, chemicals, sugar, petrol). Most oligopolists, however, produce differentiated produts (e.g. cars, soap powder, soft drinks, electrical appliances).
There are two key features of oligopoly: barriers to entry and interdependence of the firms. Barriers to entry are including economies of scale, network economies, economies of scope, product differentiation and brand loyalty. In interdependence of the firms feature, each firm is affected by its rivals’ actions. If a firm changes the price or specification of its product, for example, or the amount of its advertising, the sales of its rivals will be affected. The rivals may then respond by changing their price, specification or advertising. No firm can afford to ignore the actions and reactions of other firms in the industry.
In the baker market, there are three giant producers, Allied Bakeries (Kingsmill) (a division of Associated British Foods), Premier Foods (Hovis) (formerly British Bakeries) and Warburtons, produce bread for a nationwide market. These bakers are of a similar size and between them account for about 74 percent of the market by value. On the other hand, the market share of the small and medium sized bakers are only 5.4%. So, are the large oligopolistic bakers and the small bakers catering
Bibliography: Sloman, J. and Wride, A. (2009, seventh edition) Economics, Prentice Hall. Western Washington University (2011). ‘Bakeries industry snapshot’. Available from http://www.pacificedc.org/Library%20Docs/Bakeries%20Industry%20Snapshot.pdf [Accessed 06 Feb 2014]. Riley, J. (2012). ‘Production-Economies of scale’. Available from http://www.tutor2u.net/business/gcse/production_economies_of_scale.htm [Accessed 06 Feb 2014].