Economic

Oligopolies in Australia

Introduction

An Oligopoly is a market structure where a small number of sellers have the majority of the market share. They have control over the supply and market prices. It is a state of limited competition.

The product in this market is homogeneous in nature.  It is a state of having competition among few as there are few numbers sellers and they influences and are influenced by the other firm’s behaviour Bauer (2013). This paper also evaluates an article on the Oligopolies in Australia like Woolworth’s and Cole’s with the consideration of microeconomic principles.

Selected article:

Theconversation (2011) [Online] Available at: http://theconversation.com/coles-and-woolworths-duopoly-hard-to-swallow-533 (Accessed: 16 August 2017).

Essence of story

The major issue in the selected article is related to the oligopolies in Australia between Woolworth’s and Cole’s. These two companies are the market leaders in the food retail sector in Australia. Both retailers are affecting the regional and small-scale producers and communities Acquaah (2011).

It is having an immense effect on the small producers as they are not able to increase their incomes as both market leaders are dominating the market. The customers are affected as they have left with no other options in the market. They are charged high and have to pay the prices which are set by these two companies.

These supermarkets are having many negative consequences such as a high degree of control exercised over local council decisions, job loss, erosion of local business, etc Baker & Wood (2012).

The customers, suppliers, small producers are the interested parties which are been impacted by the domination of these two supermarkets. There is heavy competition among both of these supermarkets and they have set high barriers of entry.

The market share of these two giant companies combined is around 70-80% Dedrick & Kraemer (2011). They are not only the supermarkets but they have petrol stations, hardware stores and bottle shops etc. The customers are facing major problems such as unfair prices, fewer options available to them, etc. The two giants Woolworth and Cole was having market leadership and was creating an impact on the operations of the small-scale businesses and the medium-sized farmers.

Economic analysis

The situation given in the article shows the effect on the remaining market players due to the functioning of the market leaders Woolworth and Cole in Australia. There is an oligopoly in the retail sector of Australia. The market power is being exercised by these two leading market giants.

This situation can be presented by the oligopoly graph as below:

Firms in the oligopolistic competition are locked in price, so new ways to gain market share needs to be identified.  In the above diagram producer surplus is the private benefits given to the producers, like profits.

Consumer surplus is the price consumer pays is less than they are prepared to pay. In an oligopoly, customers are charged unfair prices as there are only a few sellers in the marketplace Young (2010). The firms have the market leader and can charge accordingly. This results in a demand shift as consumers are charged high by the dominating firms in the market.

The customers have no other domestic players as there is an oligopoly in the market. It gives an increase in the producer’s surplus Hopkins (2015). There is less efficient as an oligopoly produces less than the competitive equilibrium production, at a much high price which results in the creation of deadweight loss. It means the economy is producing little than actual. Due to this, there is a shortage of quality goods in the market.

Explain personal view

In order to manage this issue, the government of Australia needs to adopt measures to safeguard the interests of the interested parties such as customers, small producers, small-scale businesses, etc.

The Government should protect and provide incentives to the small-scale businesses and others, to ensure that there remains continuity in their operations Dwivedi, et al., (2012). The suppliers can increase their production, cut down wages, and find production efficiencies, etc Davey & Richards (2013).

The government should launch ACCC, Australian Competition and Consumer Commission to make an investigation into the code of conduct of these two companies. This will help to identify how these two giants are misusing their power in the market.

There is a need for regular revision of the Consumer and Competition Act 2010, especially when there are cases of unfair market practices Farahani, et al., (2014). Transparency and Collaboration among the supermarkets and suppliers is required to be improved. Establishing regional market platforms is a way how government can help the local growers.

Support conclusion by analysis

From the above analysis, it can be concluded that there is an oligopoly in Australia between the two giant supermarket chains Woolworth and Cole. It is clear that there is an oligopoly in Australia.

The two giants have dominated the Australian retail market. The oligopoly of Woolworth and Cole have imposed challenges for the small businesses, medium-sized farmers and the local farmers as well which are struggling quite hard to co-exist in the market Richards, et al., (2012).

There is continuous financial pressure on the small suppliers like demands for increased production, price deflation. There is a potential risk for domestic food security.

The government should provide assistance to the local suppliers, the domestic marketers, small farmers, medium-sized farmers, so that they can continue their local operations effectively.

The market power being enjoyed by the two giants Woolworth and Cole should be minimized so that it gives opportunities to the remaining market players to improve their economies of scale and production activities.

References

Acquaah-Gaisie, G. (2011). Corporate social responsibility: action for peace and human rights. International Journal of Economics and Accounting, 2(1), pp. 8-24.

Baker, R. G., & Wood, S. N. (2012). Geographical modelling, public policy and informing the ‘store wars’ sovereignty debate in Australia. Applied Geography: Using Geographic Analysis to Address Real-World Problems and Issues. Edward Edgar, Cheltenham, UK, pp. 160-183.

Bauer, P. T. (2013). West African trade: A study of competition, oligopoly and monopoly in a changing economy. USA: Cambridge University Press.

Davey, S. S., & Richards, C. (2013). Supermarkets and private standards: unintended consequences of the audit ritual. Agriculture and human values, 30(2), pp. 271-281.

Dedrick, J., & Kraemer, K. L. (2011). Market Making in the Personal Computer Industry. The Market Makers: How Retailers are Reshaping the Global Economy, pp. 291-310.

Dwivedi, A., Merrilees, B., Miller, D., & Herington, C. (2012). Brand, value and relationship equities and loyalty-intentions in the Australian supermarket industry. Journal of Retailing and Consumer Services, 19(5), pp. 526-536.

Farahani, R. Z., Rezapour, S., Drezner, T., & Fallah, S. (2014). Competitive supply chain network design: An overview of classifications, models, solution techniques and applications. Omega, 45, pp. 92-118.

Hopkins, M. (2016). The planetary bargain: corporate social responsibility comes of age. USA: Springer.

Richards, C., Lawrence, G., Loong, M., & Burch, D. (2012). A toothless chihuahua? The Australian Competition and Consumer Commission, neoliberalism and supermarket power in Australia. Rural Society, 21(3), pp. 250-263.

Young, S. (2010). THE JOURNALISM “CRISIS” Is Australia immune or just ahead of its time?. Journalism Studies, 11(4), pp. 610-624.