A market is a place where goods and services are offered to consumers in exchange of money. A market structure helps in analyzing various facets of a market. Usually, the market structure in Australia is of four major categories- monopoly, duopoly, oligopoly and monopolistic competition. The market that Coles and Woolworths operate in is duopolistic in nature (Grimmer, 2018). In a duopolistic market structure, there are two competitors for the maximum market share.
Figure 1: Market Structure
(Source: created by the learner)
The Australian supermarket sector is of duopolistic economy with Coles and Woolworths dominating every other company in the country including several new entrants. A duopolistic market is sustained by stiff competition between the two major brands (Zhang, et al., 2018). Woolworths and Coles mainly compete with the prices of regular goods such as fruits, vegetables, beverages, dairy and bread/cereal products. This has helped Woolworths to gain a 7% in market share with a decline of regular prices by 1.9%. Coles dropped their regular prices by a 3.1% on household products
In a duopolistic economy, pricing strategies play an important role for occupying maximum market share. Both Woolworths and Coles have slashed their prices on regular household products to increase their sales (Devin and Richards, 2018). Lowering prices is beneficial for the consumers but affects the suppliers and producers adversely. With Coles and Woolworths dropping the prices of milk and bread products, affects the rest of the industry’s pricing strategies too. Lower prices of day-to-day items increases sales but affects the producers of said items (Chopra and Sodhi, 2014). Revenue collected from increased sales does not nullify the effort of the producers gone in supplying and producing more quantities for lesser prices. With the continued price wars in a duopoly, regular wages of employers, dissatisfied suppliers and unstable pricing of regular food items is affected. The pricing war started by the stalwarts in the grocery sector is based on their own interest. The pricing strategy was developed by the companies to accumulate maximum market share with disregard to the long-term effects of the low prices on suppliers, producers and the market in general. Providing continuous discounts on dairy and bread products is affecting the revenues of the producers. Discount wars affect the farmers and producers who supply products to other brands such as Aldi and other individual stores. The supply and demand procedure for other producers and stores affects adversely since the demand for products become high with the highest rate of discount but the revenues generated from these stores do not suffice.
The market structure of fresh vegetables in Australian market is oligopolistic in nature. Several suppliers produce the items and supply them to different stores or supply chain stores. Wholesale markets also offer other retailers the scope of procuring fresh produce directly from farmers. Any pricing strategy affects both these suppliers and producers including individual farmers and various commercial farmers (Lederman and Porto, 2015). The discount wars between Coles and Woolworths on fresh fruits and vegetables affects these producers and suppliers since the revenue generated from mass scale products sold at these chains are not sufficient enough to cover the total cost of these products. With a share of 28% to direct sales in the market the vegetables suppliers are affected adversely with the recent price cut at Coles. They feel that the reduced prices at Coles would dry up the flow of products to every other individual store and the revenue generated from the sale sat Coles would not be sufficient to cover the expenditure that goes into producing and delivering these products to several other outlets. The price drop at Coles pressurises the entire sector providing fresh produce to independent retailers. Suppliers of vegetables question the pricing strategy Coles applied to reduce the prices of commercial grown vegetables on a large scale. Most food suppliers especially the fresh vegetables and fruits farmers incur an amount as production cost where produces are grown keeping in mind the specific demands of the consumers. If the prices are not kept constant among the stalwarts of the retail industry then these farmers and growers would not be able to stay in business of supplying products to others with limited profit and reduced revenue.
The individual vegetable producer is affected negatively with the rising price wars between industry stalwarts. It takes a lot of financial and physical effort for farmers to produce mass scale vegetables for consuming. If a single brand reduces the cost price of an item consumer footfall increases to that brand’s outlets extensively hence increasing the demand to that store (Chakraborty, 2018).
Figure 2: Cost Curves
(Source: Created by the learner)
(Source: Created by the learner)
A farmer supplying to the brand’s stores will have to produce more at a lower selling price, hence there is reduced profit from individual as well as mass sales. With continuous reduced profits for the farmers, it is possible; the farmers may go out of business. Individual farmers could be forced to leave the market of supplying to chain stores due to the reduction in profit and unsustainable pricing strategies of the brands.
A business cycle refers to the rate of recessions and growth of an economy of any geographic location or company for a period. With the global recession since 2008, the European economy including the Spanish economy suffered. The Euro-zone had a stagnated economy consecutively for several years since global recession (Beckman, 2018). While the economy of surrounding countries seems to have stalled, the Spanish economy improved extensively with the effective economic reforms, which produced a rebound effect after a long economic slump across the country. In 2013, Spanish economy was in recession along with the entire Euro-zone. High unemployment rates with low consumer spending, the economy failed to pick up pace. Economic reforms were put to effect in 2013, which resulted in improved conditions through the year. The economy of Spain started reviving through the second half of 2013, which resulted in reduced unemployment rate from January 2013 to October 2013. Consumer spending also increased with the growth of GDP in 2013. The Spanish GDP increased from a -0.8% to a -0.1% by the end of 2013.
Figure 3: Aggregate supply and demand model
(Source: Created by the learner)
(Source: Created by the learner)
The economic reforms affecting the Spanish economy took a while to show results. 2013 was the year of the economy recovering and growing from the recurrent slump of a long time. The economy of Spain was in the expansion phase of business cycle when it was recovering from the previous trough.
With regard to the growth in the economy, the current state of Spanish economy in 2014 was at its peak level. At the peak level of an economy in a business cycle, the unemployment rate reduced, in turn increasing the consumer purchasing quality. With increased domestic sales and exports, the national GDP reached new heights in 2014. With an increase in employed population in the country, a demand for product supply increased. This improved the GDP of the country.
Spain’s recent unemployment rate = 24.47%
People employed = 17,353,000
Total number of unemployed people = 5,621,977
The Indian economy in 2016 was at an expansion phase with increased individual income and lower energy prices. Industrial development also improved the economy of the country.
Figure 4: Phases of business cycle
(Source: Created by the Learner)
Growth of the Indian economy was based on private consumption; this was benefitted with lower energy prices. With increased industrial development, low energy prices will improve the overall growth in industries and renewed sales in the power sector hence increasing the growth trend.
Monetary policies need to be monitored by the Reserve Bank of India. This indicator is kept in check by maintaining a constant low commodity price. A more strict monetary policy regarding labour market reforms and various infrastructural bottlenecks within the power sector has to be implemented (Mahalakshmi, et al., 2016). The Reserve Bank of India can control the policies implemented on the power sector by modifying the policy rates of the economy. Inflation and deflation affects the economy, RBI is responsible for reducing or increasing the money supply within an economy to balance the effects of inflation or deflation.
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