Economic Analysis of Oligopoly

Topics: Average cost, Economics, Supermarket, Marginal cost, Oligopoly / Pages: 7 (1563 words) / Published: Oct 20th, 2008
Economic Analysis of an oligopoly market structure
Supermarkets brew up a crate full of profits

1. Introduction
1a Article Summary
Woolworths and Coles continue to extend their dominance in the grocery market and more recently petrol. This has been extended and they are now looking to expand their hold on the Australian market by moving into the liquor industry. Julian Lee (2008) highlights Coles and Woolworths move into the industry, by trying to build on their previous acquisitions of liquor outlets to challenge the major brands for a share of the $6 billion per year Australian beer market. The article reveals that Coles and Woolworths plan to ‘give more space to their own beers and promote the beers in their hotels’. The beer market has so far been resistant and has retained a strong brand loyalty. Coles and Woolworths are competing against each other and relying heavily on price discounting and forming supplier contracts to attain exclusive supply. The article questions whether or not these oligopolies will be as successful as previously in attaining their complete dominance because ‘home or exclusive brands’ are currently only a small component of the market.

1b Justification of the topic
‘Supermarkets brew up a crate full of profits’ is an article that clearly describes the workings on an oligopolistic market. The fact that the market is governed by two powerful firms that have the ability to influence price shows that the market more closely resembles a duopolistic structure. The beer and liquor industry comprises a differentiated oligopoly of which Woolworths and Coles are the main controllers. Woolworths and Coles control between 78 and 80.5 per cent of the national grocery market according to two 2008 retail surveys (Lenaghan, 2008), indicating a very high seller concentration ratio, and this figure points out the two giants’ share of the supermarket industry, including their diversification into liquor. It is clear that the competitors hope to



Bibliography: http://www.canberra.yourguide.com.au/articles/1225433.html Moynihan, Stephen, December 10, 2007 Jones, Evan. 2005. LIQUOR RETAILING AND THE WOOLWORTHS/COLES JUGGERNAUT [Online], Available:

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