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Economics - Oligopoly

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Introduction

Economics Coursework: Oligopolistic Market Structures The Question... How can small independent retailers compete in an oligopoly? In this investigation, I will determine if small retailers can compete in an oligopolistic market structure. But before this question can be answered, the term "oligopoly" must first be defined as so to compare the market structure of an oligopoly to the structure of the supermarket industry. There are some main factors that an oligopolistic market possesses; all of them must be fulfilled to classify a market as an oligopoly. However, my take on why small retailers continue to survive in oligopolistic market structures due to how they provide a sense of unity within the area they encompass; providing goods that they know that community needs, based heavily on the fact that the small retailer sees a local connection in the area which can be capitalised on by being more personal and closer to the community they reside in. It's an intangible factor in which small retailers can reside in and use to take Factors that an oligopoly must have: 1) Concentration Ratio: In many different markets across the world, the concentration ratio of a specialist market is used to analyse the size of a specific firm within that market. In a monopoly; owning a firm with a concentration ratio over 95% would mean that firm would be considered as creating a monopoly in that market. However, an oligopoly has different criteria which analyses the "Big 4" firms in a market. If the relative size of those firms add up to a percentage above 75% (in the supermarket industry); then that market with the "Big 4" can be considered to be an oligopolistic market. For the UK Supermarket Market; the information group TNS Superpanel records the relative size of grocery markets. Their most recent records show the following about the top 4 supermarkets in the UK today. ...read more.

Middle

In a similar fashion, "shadow pricing" can be used as a type of collusion; creating a market price that is stable and allows all parties who collude to enjoy abnormal profits. Uses of economies of scale - advancements in technology and overall resources including financial, marketing and controlling the supply of produce with distributor agreements - known as oligopsony are both common barriers in this type of market structure that the supermarket industry displays in the substantially larger amount of marketing and advertising that the larger firms such as Tesco and Sainsbury's exhibit. External Research: The Consumer's Needs and Wants To examine further my theory as to why small retailers are able to survive and compete in an oligopolistic market structure; I questioned 15 members of the public (ages ranging from 15 - 55) with questions that related to what influences their choices and the reasoning behind their choices. The age ranges that the participants questioned fall under are 15-20 [2]; 21-27[5]; 28-40[7] and 41-60[1] above. The questions and results; with my analysis are below: 1) Where do you buy your groceries? Answers: 14 people of the 15 I questioned gave at least one supermarket brand name that is one of the "Big 4" as an answer - the oldest person to take the questionnaire stating that he did not go to any of the large outlets (The "Big 4" Sainsburys, Asda, Tesco and Morrisons). Out of those 4 chains, the following number of people responded with the respective brand: Tesco: 10 Morrisons: 3 Sainsburys: 6 Asda: 6 In terms of mentioning small retailers such as local newsagents and small grocery stores, all 15 stated that they went to small retailing outlets. 2) How often do you go to certain grocery stores? Answers: Out of all the 15 people questioned, 14 of them stated that they went to a small outlet at least once a day. ...read more.

Conclusion

Through the questionnaire with the co-owner of Junction News, I gathered from how he spoke about people's natures that he can thrive and even grow because he doesn't entirely attach himself to the consumer; nor does the consumer attach themselves to the retailer in the way that supermarket chains would want to - the heavy use of promotions, advertising and expansion to keep the consumer in their shopping bracket. What keeps the smaller retailer in the market is the point of not being totally reliant of being in the public eye; a strength when it comes to not being parted to brand selection because of the major firms literally attacking the consumer to get them buying their products. In terms of expansion, smaller retailers have another advantage. The need not to expand their business. Simply because it is not in demand for them to expand. The oligopolistic market structure already allows for many firms to be suppliers to the consumers. With the growing need to for all major player to expand, it raises two issues. One, why would a new player in the market be needed? And two, how would the player be able to grab enough consumers to stay alive in the market? Point being, the small retailer has the large advantage of just wanting a profit. They don't need to keep up; they are already up by still being in the market today! Through answering this question, I have found flaws in my research. Firstly, I don't think I interviewed enough people. 15 was a decent amount, but I could've got 20 or even 30 to make the result more conclusive and even better in terms of accuracy. However, the detailed deconstruction of those questions provides a good amount of answers that answer my questions. Another point would be to use more sources outside of the internet, using more texts from books would be something else to change. ...read more.

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