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†¦show more content†¦Woolworths and Coles would have agreements with farmers to supply exclusively to them, in exchange for the firm purchasing all of their quality produce. Woolworths and Coles are also more likely to be able to purchase products, including fruit and vegetabl es, for a cheaper price than small, independent sellers, as they are purchasing in bulk. According to McKenzie (2002) No major supplier, no matter how big or powerful they are, can afford to be offside, or out of favour, with Coles or Woolworths. Economies of scale give Woolworths and Coles an advantage over smaller retailers because, as a result of their large scale production, they are able to produce at a lower average cost, allowing them to sell goods to consumers at a lower price. This competitive pricing eventually forces smaller firms out of the market, as they are unable to match the predatory pricing, due to a lack of economies of scale. Because Woolworths and Coles generally have homogenous products, they rely on a heavy use of advertising, in order to avoid competitive pricing with each other. Oligopolies tend to avoid competitive pricing at all costs, as the worst case scenario of this is a price war, which generally cannot be escaped, resulting in one survivor, who goes on to become the monopolist. It is evident that Woolworths and Coles are mutually interdependent, whereby each of the firms pricing strategies relate to, and depend on, eachShow MoreRelatedA Monopoly Is A Single Seller951 Words   |  4 Pageswhen a specific person or enterprise is the only supplier of a particular commodity (this contrasts with a monopsony which relates to a single entity s control of a market to purchase a good or service, and with oligopoly which consists of a few entities dominating an industry).[2] Monopolies are thus characterized by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the existence of a high monopoly price well above the firm s marginal cost thatRead MoreQuestions On Asian Grocery Stores1484 Words   |  6 PagesJohnny Zhuang Glenlyon Norfolk School International Baccalaureate Extended Essay Ms. Andrea Robertson 09/26/2014 To what extend does Asian grocery stores operate in an oligopolistic market in the region of Chinatown of Victoria? 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