What type of market structure do Coles and Woolworths operate in? Justify your answer with reference to some limited research and the appropriate economic theories.
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.
Based on your answer to and with reference to the appropriate economic theories, discuss the effects of pricing in this market, especially in regards to revenues. Is it in the interests of Woolworths and Coles to have a price discount war? Why or why not?
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.
What type of market structure is the market for vegetables provided by farmers? Explain why with reference to Sources 2 and 3 and the appropriate economic theories.
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 ). 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.
How would falling prices for vegetable products due to the price war affect the individual vegetable producer? Demonstrate your answer with reference to a diagram showing only an individual farmer’s cost curves. Would small farmers be forced to leave the market in the long run? Why or why not?
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 (. 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.