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UK supermarkets – Oligopolistic competition

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UK supermarkets – Oligopolistic competition

1. An Oligopolistic market is where a few firms dominate the market
and these firms are interrelated. This kind of a market has several
sellers but only a few have most of the market share, the ‘n’ firm
concentration ration is high. In the supermarket market in the UK, the
5 firm concentration ratio is 75%, i.e. the five main firms, Tesco,
Sainsbury, Asda, Safeway and Morrison’s together have 3/4ths of the
market share.

Barriers to entry in an Oligopolistic market are high because the
dominating firms enjoy huge economies of scale and able to supply at a
very low price hence gaining a competitive edge. In this case,
Morrison’s wants to acquire Safeway because barriers to entry into the
supermarket market in the south are high as it is difficult to get
planning permission for stores in and around town. Hence both
legislations and competition are barriers to entry.

Firms in this market are highly interdependent. The main competitors
are highly competitive and a change in one’s policies affects its
competitors. For example, in this case, when Morrison declared that it
was trying to strike an acquisition deal with Safeway many other
potential buyers entered the ‘race’. Owners of competitors like Top
Shop and BHS wanted to buy Safeway over Morrison’s in order to gain
greater market share. Competitors like Tesco also protested as they
knew that acquiring Safeway would make Morrison’s more competitive and
the ...

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