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Supermarkets


Increasing concentration

There is clear evidence that the UK supermarket sector is increasingly dominated by a few firms, led by Tesco, Sainsbury and ASDA. The supermarket sector is oligopolistic and the pricing strategy of supermarkets can be understood using game theory approach.

It is also accepted that many farmers and growers are suffering as a result of the increasing monopsony power of the major supermarkets.

The pace of concentration appears to have accelerated over the last five years, as indicated by the following chart showing market shares in 2008. (Source: Verdict, April 2005).

Supermarkets market shares

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Tesco was prevented by the OFT from purchasing Safeway in 2002, but was allowed to buy 1200 ‘convenience’ stores. By 2005, Tesco had acquired nearly 6% of the convenience food market. (Source: Verdict).

The decline of independent retailers

The rise of the large supermarket chains has, unsurprisingly, coincided with the decline in independent high street retailers.

Over the last 5 years the number of independent retailers has fallen by a third, from 35,000 to 25,000.

Questions

  1. Describe and account for the changes in supermarket concentration from 2000.

  2. Examine the likely effects of this level of concentration.

  3. What remedies are open to regulators to limit market dominance by Tesco?