Oligopoly theory highlights a number of characteristics; non-price competition is strong, 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. Many of these features can be observed in the leading supermarkets - remember the 'product' they are selling is not just the items you can buy in the store like bread, eggs, jam, cheese, beer etc but more the whole experience of shopping. Grocery shopping is not an activity that too many people enjoy for its own sake so the firms are acutely aware of how people experience their trip to the supermarket!
Firms who dominate the industry in this way tend to benefit from considerable economies of scale. In gaining these economies there are lots of complaints by those in the supply chain about the treatment they receive at the hands of these big buyers. Farmers in particular have complained that they are put under huge pressure to deliver higher and higher quality and standardisation at lower and lower prices and that they are effectively bullied into submission by the power of the supermarkets who drive prices to them down but do not pass on the same price rises to consumers. Other firms who complain are the small grocers who find it very difficult to compete - especially as supermarkets are now moving into non-food items as well as groceries. As a result, local shopping facilities are reduced and lead to the death of other facilities in small towns and villages.
Because of the potential problems caused by large firms dominating an industry in this way, the Competition Commission and the Office of Fair Trading (OFT) monitor the activities of businesses to ensure that competition is maintained and that the public interest is protected. Investigations into whether business activity acts in the public interest centres on four broad areas; prices, choice, innovation, quality and availability. There have been concerns that since the passing of the Enterprise Act 2002 that the 'public interest' criteria will become less prominent and that the main concern will be over the impact on competition alone. (There is an overview of this Act on the OFT Website - see the link below) Whatever the outcome of this Act, the OFT have been involved in a number of high profile cases recently that highlight its importance in regulating the behaviour of firms in industries where they may have considerable market power although some would argue that these powers are not strong enough!
To do this question, first identify the key features of an oligopoly. You can get this information from any main business studies or economics textbook as well as the hints in the 'Theory' section above. Once you have these - ensure you understand them! Try to find examples of cases where the main supermarket chains have shown such characteristics. For example, Tesco introduced its 'Clubcard' some years ago - Sainsbury's criticised the move suggesting it was a gimmick but after the Clubcard appeared to be a success launched their own version! Is this an example of non-price competition and brand leadership?