Describe the market structure for the supermarket industry in the UK. Give reasons for your answer.
The supermarket industry in the UK can be described as an oligopoly market structure. This is because the industry is dominated by a small number of large firms, such as Tesco, Sainsbury’s, Asda, Morrisons, and Aldi, who collectively hold a significant market share.
There are several reasons why the UK supermarket industry can be classified as an oligopoly:
- High barriers to entry: The capital required to enter the market, establish a supply chain, and build a customer base is high, making it difficult for new firms to enter the market and compete effectively with established firms.
- High levels of product differentiation: The large firms in the industry offer a wide range of products and services, making it difficult for new firms to establish themselves in the market and attract customers.
- Interdependence among firms: The actions of one firm in the market have a significant impact on the other firms. This interdependence can lead to price collusion, where firms agree to keep prices high, or price wars, where firms compete aggressively to gain market share.
- Non-price competition: Firms in the industry compete not only on price, but also on other factors such as product quality, branding, advertising, and customer service.
Market structure refers to the characteristics of a market, including the number of firms in the industry, the nature of the product or service being sold, and the level of competition.
The supermarket industry in the UK is dominated by a few large firms, making it an oligopoly market structure. The top four supermarkets (Tesco, Sainsbury’s, Asda, and Morrisons) account for a large market share, with smaller firms facing significant barriers to entry.
An oligopoly market structure is characterised by a small number of large firms dominating the market, significant barriers to entry for new firms, and interdependence between firms in terms of pricing and marketing decisions.
The oligopoly market structure in the supermarket industry in the UK is largely due to the high barriers to entry, such as the high costs of establishing a supermarket chain and the need for economies of scale to remain competitive. Additionally, the dominance of the top four supermarkets creates a level of interdependence between them, making it difficult for smaller firms to enter.
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