12.4+Market+Structure

Market Structure  Supermarkets in Australia operate in a highly concentrated industry. There are two supermarket chains who, between them, attract more than 80% of our supermarket spending. The market they operate in is called an [|oligopoly]. An oligopoly may have a large number of firms operating in it but a small number will have a large market share.

In an oligopolistic market like the supermarket industry, the main competitors can use their market power to increase their profitability. But do they?

Use the discussion tab above to respond to the opening discussion question.

Case Study 1 - Australian Supermarkets

Here is an interesting report prepared by Four Corners on Australia's Supermarket industry. They highlight the benefits to the supermarkets from their market power not only in selling (oligopoly) and in the purchase of their products from the suppliers ([|monopsony] power).

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[] In further news on this topic, it was recently announced that the ACCC will be investigating the potential abuse of market power by Coles and Woolworths.

Read more here

=[|Watchdog eyes supermarket tactics] =

The main areas of concern for the ACCC are:

Charging higher than agreed to fees to their suppliers. Imposing penalty payments on suppliers which were unrelated to the costs incurred by the supermarkets. Discriminating against companies in favour of their own homebrands.

Consider how each of these actions are a result of market power and how they decrease the efficiency of resource allocation. =[|Suppliers rate Aldi above Woolworths and Coles] =

The following information is derived from an article that featured in The Australian Finanical Review, January 7-8, 2012
 * Case Study 2 - Apple **

Make a meal of Apple, cry retailers
 Apple’s iPhone, iPad and iPods may be pulling in customers by the millions but retailers would rather sell someone else’s product. They loathe the power Apple wields. Such is the multinational's sway that retail chief executives ducked for cover when asked by The AFR about doing business with Apple.  The chief concerns of the retailers 
 * there are slim margins on selling the products (10% against an average of 22%)
 * Apple controls the store displays and marketing material
 * <span style="color: #222222; font-family: Arial,Verdana; font-size: 14px; line-height: 21px;">for printed material their products are either on a single page and not side by side with a competitor
 * <span style="color: #222222; font-family: Arial,Verdana; font-size: 14px; line-height: 21px;">Apple gives short notice on the release of a new product
 * <span style="color: #222222; font-family: Arial,Verdana; font-size: 14px; line-height: 21px;">Apple controls how many products the retailer receives
 * <span style="color: #222222; font-family: Arial,Verdana; font-size: 14px; line-height: 21px;">Retailers have to compete directly against the apple store and the apple online store

<span style="color: #222222; font-family: Arial,Verdana;">Do the retailers have any grounds for complaint? Express your opinion here if you feel the desire to do so.