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The market of UK supermarkets (case study: oligopoly) - Essay Example

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The UK supermarket industry is in an oligopoly market where few industry players dominate it. In the UK, the ‘big four’ supermarkets dominate nearly 75% of the whole market. These…
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The market of UK supermarkets (case study: oligopoly)
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Download file to see previous pages In essence, this theory suggests a market with no barriers to entry and no barriers to exit.1 In other words, zero entry and exit costs. According to this theory, for a market to be perfectly stable, relevant industry technology would be readily available to potential entrants.2 This paper aims to investigate the contestability of the UK supermarkets, focusing on Tesco, Sainsbury, Morrison’s, and Asda supermarkets
A study by Baumol noted the importance of defining terms before analyzing them.3 Therefore, in this case, contestable markets are imperfectly competitive markets in which firms face real and potential competition.4 The biggest threat in this market, as noted in a study by Faulkner is the risk of ‘hit and run entry’. According to the author of this study, new rivals bring this threat.2 The importance of this threat is that, it keeps the market operating at a competitive price and output. It brings allocative efficiency.2
A quantitative study by Faulkner highlighted the main difference between contestable and perfectly competitive markets. According to this study, one or few firms dominate contestable markets. Additionally, each industry player in this market produces a differentiated product.
A study by Stone highlighted the three conditions for market contestability. These conditions are ability and legal right to use the best available technology legal freedom to enter a market and the relative absence of sunk costs.3
There are various ways of making markets more contestable as noted in a study by Giovanardi. The first way is de-regulation.4 In this method, governments have to reduce barriers to entry to markets. The second way is formulating tougher competition laws.4 These laws need to be imposed on the predatory behaviour by the existing players in the markets. The third way is changing the nature of technology.4 This will bring down entry costs and will ...Download file to see next pagesRead More
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