Essay: UK Market Structure" (26 Characters)

Overview of Market Structure

Question:

Disucss about the Market Structure of UK’s Retail Industry.

The aim of this report is to highlight on the structure of market of the UK’s retail industry. The company that is chosen for this report is J Sainsbury Plc that has been operating in UK’s retail industry. This organization is the second biggest supermarket chain in this country with total share of 16.9%. This entity is split into three sectors that include- Sainsbury’s Bank, Sainsbury Argos and Sainsbury supermarket ltd. Market structure is defined as the degree and nature of competition for the products in the existing market. Several determinants of the market structure are- product nature, number of purchasers and sellers, economies of scale and conditions of entrance and exit. There are various kinds of market structure including- monopoly, monopolistic competition, perfect competition and oligopoly.

The retail sector of UK has oligopolistic market structure as few companies share the large proportion of this industry. The four biggest retailer of this nation are –Tesco, Morrison, Sainsbury and Asda.  Some vital feature of this market structure includes- interdependence of organizations in making decision, existence of price rigidity, less number of firms, production of either differentiated or similar commodities and significant hurdles to entry (Yu, Ramanathan & Nath, 2014). As there is less number of retailers in this industry, the action of each retailer affects the other. In addition, the organization in this industry holds substantial market share, which results in higher degree of market concentration. Moreover, the sellers of this industry try to gather information about the target market in order to gain competitive advantage. On the contrary, the purchaser in this retail industry has imperfect knowledge about price as well as quality of commodities. Due to fierce competition in terms of price prevails in this UK retail industry for attaining huge market share, the nature of UK retail players are basically non-collusive. Moreover, barriers in entry of new firms help the UK’s retail leaders retain market control in this industry. Some of the significant entry barriers that discourage the nascent organizations are- government licenses, strategic actions and economies of scale.

As the main motive of the market leaders in this industry is to attain long run profits, high barriers in entry prevent the new organization in entering the market for attaining excess profits. Sainsbury and other market leaders in this industry produce either similar or differentiated commodities for attracting large number of buyers in the market. Moreover, if Sainsbury strategizes to lower their product price, their rivalries including Tesco, Morrison and Asda revise their price of product for retaining their customers. As a result, this strategy might adversely affect the rivalries of Sainsbury as it does not help them in increasing the demand for their commodities. This however relates to inelastic demand curve. On the other hand, if Sainsbury strategizes to increase their product price, the rivalries might not follow the leader’s strategy in this oligopolistic market structure. As a result, the demand for product of these rivalry firms decreases considerably (de Chernatony, 2012). Furthermore, the organizations existing in UK’s retail industry are mainly involved in non-price competition in order to enhance their overall sales. Non-price competition refers to the marketing strategy where one company strategizes to differentiate their commodities from their competitors based on its product features and design, quality of service, extent of product distribution etc. However, this non-price competition enhances the profitability level of Sainsbury and also helps them in expanding their business in the global market.

Oligopolistic Market Structure of UK Retail Industry

Near about 75 companies operate in UK retail industry. The players operating in this industry manufactures either differentiated or homogenous product so that they can differentiated themselves from their competitors (Rios, McConnell & Brue, 2013) In addition, the retailers in this industry strategize to shift their focus to promotional activities for attaining reputation and building brand value. Therefore, the key players heavily spend on advertising and other marketing programs. The retail firms in this industry is basically concentrated as well as highly fragmented. Hence, the rivalries of Sainsbury and other key players are well positioned and established in this industry. The strategic action that this market leader strategizes to implement is to target their purchasers for perceiving the brand value and reputation in the market (Luceri & Latusi, 2012). In addition, the players in this sector also analyze their competitors and existing market condition in order to attain competitive advantage against them.  The analysis of strength and weaknesses of competitors also benefits the market leaders. Additionally, competitive intelligence helps the key to know about the competitor’s position in this industry. This in turn helps them in planning their future action in the business activities. Sainsbury strategizes to innovate new product for establishing their position in the marketplace. The environmental regulation also influences the competitive performance of the firms (Mankiw, 2014). Additionally, reforms in tax structure also affect the financial performance of these key players in this industry. Recent statistics reflects that Tesco has been the market leader and has better position than other players have in the market. Moreover, Sainsbury has been ranked in the second place in UK’s retail industry.

The strategies that Sainsbury adopts for gaining competitive advantage are- brand marketing, inbound as well as outbound logistics, creation of new products, revising of products prices by focusing on its rivalries action, implementation of new software and hiring of new experts in every department (Baldwi & Scott, 2013). The  product that this company offers are somewhat differentiated in nature in terms of design and quality. Furthermore, adoption of new policy by the government of UK also influences this retail industry either in positive or negative way. Reforms in few policies also increase competition among the firms in this retail industry (Bauer, 2014). This in turn adversely influences the new entrants entering in this industry. Moreover, each participant that operates in this oligopolistic market such as producers, suppliers, customers and other stakeholders also plays vital role by helping the firms in achieving success and expanding their business. Out of these participants, the retailers play the major role as the helps the firms in gathering all kinds of information about the market condition, customers and other competitors (Chen & Wu, 2012). This helps the retail firms in designing the good based on the preferences and requirements of customers. This in turn helps the firms in attaining trust of the customers. Besides this, they also acquire the feedback from their buyers throughout the development process of the product for ensuring that the end commodity fulfills their customers need. The customer’s feedback also facilitates them in guiding their business as well as in marketing decisions (Baumol & Blinder, 2015) Therefore, the information about the product, market and customers buying behavior has been readily available to each participant in the industry through social media. Price determination refers to setting of price by market forces that balance demand and supply of product for optimizing output. Price of a product is determined in the market through demand and supply, production cost, competitor’s action and government regulation.  Each firm in this oligopolistic market structure can attain long run economic profit because of these success factors.

Conclusion

The dominant players in UK retail industry discourage new entrants and also seeks to keep out their competitors out in the marketplace. In addition, fierce competition in this market structure helps the firm in improving their product and business activities. Though the players in this industry are non collusive in behavior, they allows healthy competition. However, this also affects the firms in determining price of product. Thus, implementation of proper strategy helps them to achieve success in business.

References

Baldwin, W., & Scott, J. (2013). Market structure and technological change (Vol. 18). Taylor & Francis.

Bauer, M. J. R. (2014). Principles of microeconomics.              

Baumol, W. J., & Blinder, A. S. (2015). Microeconomics: Principles and policy. Cengage Learning.

Chen, P. Y., & Wu, S. Y. (2012). The impact and implications of on-demand services on market structure. Information Systems Research, 24(3), 750-767.

de Chernatony, L. (2012). The impact of the changed balance of power from manufacturer to retailer in the UK packaged groceries market. Journal of Retail and Marketing Channels (RLE Retailing and Distribution), 258.and UK retailing productivity: evidence from microdata. Economica, 79(315), 425-448.

Dunne, T., Klimek, S. D., Roberts, M. J., & Xu, D. Y. (2013). Entry, exit, and the determinants of market structure. The RAND Journal of Economics, 44(3), 462-487

Luceri, B., & Latusi, S. (2012). The importance of consumer characteristics and market structure variables in driving multiple store patronage. Journal of Retailing and Consumer Services, 19(5), 519-525.

Mankiw, N. G. (2014). Essentials of economics. Cengage learning.

Matsumura, T. and Tomaru, Y., 2012. Market structure and privatization policy under international competition. The Japanese Economic Review, 63(2), pp.244-258.

Rios, M. C., McConnell, C. R., & Brue, S. L. (2013). Economics: Principles, problems, and policies. McGraw-Hill.