Economics of Competition Essay Example | Topics and Well Written Essays - 3000 words

Economics of Competition - Essay Example The trend towards concentration had been present for the previous twenty years, but the 1980s were characterized, most notably, by the emergence of a small group of retail corporations whose turnover, employment levels, profitability and sheer market and political power came to rival the largest industrial corporations in any sector of the UK economy. Between 1982 and 1990, the market share of the top five grocery retailers increased from under 25 per cent, to 61 per cent of national sales, on one estimate, and a "super league" of just three firms began to separate out in terms of growth, profitability and annual capital investment. During years which have been described as the "golden age" of British grocery retailing, the immense oligopsonistic buying power wielded by the retail corporations came to condition all aspects of retailer-supplier relations, and created new corporatist relationships between the retailers and the regulatory state. Nowadays, there are many retailers who are trying to enter the competitive grocery market. However, it is difficult to gain substantial market share as the industry is very saturated and requires a lot of efforts for companies to become leading competitors. Below, the market share of the UK retail industry is presented. As we see from the table, only a few retailers present competitio... The "Others" that include hundreds of retailers constitute 14.3% and are relatively small shops that do not present a threat to the retails such as Tesco or Asda. The evolution of grocery industry and the competition in it reflects significant changes over the time. As we will see further in this paper, the competition in the grocery industry used to take place between the small shops which did not take a dominant position on the whole market of the country, but rather were located and competed on the small area. In present time, the situation is changed as big retailers try to capture the whole market of the industry. 2. Main grocery retailing competitors To understand how the competition of British grocery retailing evolved, it is first necessary to appreciate some of the key features of the retailer-dominated UK food system which emerged during the 1980s, for it was those features which drove that internationalization. Four features will be picked out. In practice these are intimately interconnected, but for purposes of discussion it is useful to separate them. In the early 1980s the top three firms-Sainsbury, Tesco and Asda-held a combined market share of around 20 per cent of national grocery sales. They had recently been joined by two other firms, the Argyll Group and the Dee Corporation (later Gateway), which were growing rapidly by takeover and merger. Between 1982 and 1988 the dominance of this "big five" group increased considerably. Their combined market share reached approximately 43 per cent by 1984 and 58 per cent by the end of 1988. By 1988, Sainsbury, the largest food retailer, had surged up the rankings of British companies by turnover, from 51st position a decade earlier, to 14th