UK supermarket sector is an oligopoly. Critically evaluate this Essay

UK supermarket sector is an oligopoly. Critically evaluate this statement - Essay Example Their trade was valued approximately at ?76.78 billion in the year 2000 and had increased by 4.5% over the years (Tyler, 2011). In this study, the discussion will critically evaluate the citation that UK supermarket sector is an oligopoly. For this purpose, Tesco, Sainsbury’s, ASDA, Morrisons and Safeway will be included in the study since they are the top five supermarket chains. The Oligopoly Market According to Investopedia, â€Å"An oligopoly is much like a monopoly, in which only one company exerts control over most of a market. In an oligopoly, there are at least two firms controlling the market† (Investopedia, 2011). In the UK supermarket there are mainly three big companies that operate and control the market. These are Tesco, Sainsbury’s and ASDA. Its presence is also felt in the European market as most of the supplies of the supermarket are through these companies. The oligopoly market structure is such that there are few sellers, who control the market . Unlike the monopolistic competition, perfect competition and monopoly market, the oligopoly requires to think strategically. In oligopoly, the sellers are huge enough to have an influential affect upon the market. A seller needs to respond to its competitors’ choices, but the competitors are countering to the sellers’ choices. For instance, when Tesco responds towards the choice of Sainsbury’s, at the same time Sainsbury’s reacts to the choices of Tesco in the UK market (Ohio State University, 2000). In the oligopoly markets, there are tensions in relation to cooperation as well as self-interest in the companies such as Tesco, ASDA & Sainsbury’s in the UK. If all these companies limit their productivity, it will affect the prices that will tend to be high, but then there are possibilities of the companies to have an incentive to expand their output (Ohio State University, 2000). Strategic Decision in the Oligopoly Market The strategic decision is crucial in the case of firms that are interdependent. In the UK market’s supermarket sector Tesco, Sainsbury’s and ASDA are interdependent as they control the market in this segment. They cannot act independently; consequently they have to take into consideration the likely responses of the competitor in order to make any kind of alteration in the pricing and non-pricing activities. They develop the strategies based upon the probable reaction of the rivals (Economics Online, 2011). In the UK supermarket, Tesco, Sainsbury’s and ASDA need to decide strategically in certain aspects of the market that are listed below: Competition Strategic Decision The firms need to strategically decide whether to compete with the competitors or join together. It is tough to decide as a prediction made by the firms against the decision made by the rivals might turn out to be wrong (Economics Online, 2011). Pricing Decision The firms need to strategically decide whether to increase or decrease the price or to keep it at constant. It is difficult for the firms to decide. They generally undertake the