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Recent industry analyses typically have strong relation with economic theories. There is a theory, belongs to microeconomics, divides industries into categories according t the degree of competition that exists between the firms within the industry, i.e.

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Introduction

INTRODUCTION Recent industry analyses typically have strong relation with economic theories. There is a theory, belongs to microeconomics, divides industries into categories according t the degree of competition that exists between the firms within the industry, i.e. the theory of Alternative Market Structures. This essay based on three questions divides into 3 parts to explain and evaluate the questions. This essay (PART A) outlines the main categories of market structures, and shows the theoretical features of two of them, i.e. Perfect Competition and Oligopoly. This essay (PART B) evaluates upon the most relevant structure in regard to the UK supermarket industry. This essay (PART C) shows the implications for the UK supermarket industry of the Morrison to take over Safeway. Additionally, in this essay, the spread conclusions of three parts are in their finalities that would be instead of the conclusion in the end of the whole essay. PART A Markets can be described in relation to their different levels of competitiveness. The different market structures are perfect competition, monopoly, oligopoly and monopolistic. For an overview of each structure's comparative characteristics see Table 1 Comparative Market Characteristics Characteristics Perfect Comp. Monopolistic Oligopoly Monopoly No. of Firms Many Many. Few One Price Control None Some High degree High degree Entry Barriers None. ...read more.

Middle

Most of these barriers are related to economies of scale. This is, because there are huge start-up costs to enter an oligopoly market. Generally speaking, the main form of oligopoly competition is a strong non-price base, high levels of branding and brand loyalty; prices tend to be stable, high degree of interdependence between the main rivals - all of them watching what the other is doing and seeking to react and pre-empt their rivals; high of barriers to entry; strong emphasis on advertising; economies of scale; a possible price leader whose actions are followed by rivals and the potential for collusion. PART B In the UK, the concentrated supermarket industry structure emerged in 1980 and during the 1990s the major supermarkets began to open many stores in order to increase their market share from under 20% to over 60% and because many shoppers visit the shop which is nearest. Till nearest years, the supermarket continues to grow. In 2002, retail sales of food through supermarkets and superstores reached an estimated �83.68 billion, a growth of 5.1% on the previous year. In order to classify such large industry within the market structures categories, it must, firstly, describe this industry as a number of features. During decades' development, although the retail grocery market contains many hundreds of firms, several major firms that see Table 2 dominate the whole industry. ...read more.

Conclusion

The acquisition would generate additional sales for certain products, and would create a fourth national competitor with growth potential to offer an additional outlet for suppliers' products. Firms, however, who dominate the industry and usually tend to benefit from considerable economies of scale. In gaining these economies they will require the supply chain to change and put the supplier under huge pressure to deliver higher and higher quality and standardisation at lower and lower prices by the power of the supermarkets who drive prices to them down but do not pass on the same price rises to consumers. Increasing the barriers of entrant is one negative influence which cannot be ignored. When the industry is becoming higher concentrated structure by the acquisition, that means the market will be made even harder for new shops, especially the small firms who may not have abilities to compete, offering a new shopping experience to enter the market. Because of the barriers, it causes some limitation on the customer choices. As above mentioned, the Competition Commission's decision of acquisition by Morrisons of Safeway motivates the UK supermarket industry to be more monopolistic while maintaining the scope of competitiveness. Of course, there are a few potential problems that might express in next few years, when the competition is gradually reducing and balancing. 1 Source by Sloman & Sutcliffe, Economics for Business, 1998 2 Source by IDC data, 2003 3 Source by Competition Commission, 2004 Business Economics Market Structures 1 1 ...read more.

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