Equilibrium in the Duopoly Market-Free-Samples-Myassignmenthelp.com

Question: Discuss about the Monopolies, Duopoly and Oligopolies in Australia. Answer: Introduction Number of buyers and sellers define the characteristics of any market. Fewer the number of sellers larger is the market power of the seller. Supermarkets generally contain few large sellers. Hence, one can expect an oligopoly structure for the supermarkets. In the paper, supermarket structure for grocery sellers in Australia is observed. Two big retailers Woolworth and Coles are almost successful in eliminating most of their rivals and thus form a duopoly. The power of these two retailers is expected to influence the economic health of Australia. Essence of the story Chief of small business council, in a published article gives indication of possible duopoly in grocery business. While giving own opinion concernment of Shop Distributive and Allied Employees Association (SDA) is linked with the fact (NewsComAu 2017). There are there big organizations that greatly influence economic condition of Australia. The high or increasing penalty rate leads to closure of small business. This provides strength to large retailers. Thus the attrition policy of SDA indirectly assist the duopoly structure in the economy. Relaxation of regulation by SDA helps Woolworths and Coles to increase their market share and boosts SDAs membership. Therefore, Woolworths and Coles need not focus much on increasing their market share by improving their quality of service or providing additional discount or facilities to the customers (Heffernan 2017). The cost advantages enjoyed by them and increasing attrition are enough to expand their business. In the article, the chief has rejected the common suggestion for the supermarkets such as acting as pharmacies or arranging Lotto tickets sell. These suggestions are expected to destroy narrow pace of shopping leaving large shopping centres with large supermarkets and number of franchises as only option for the customers. Economic theories and concept Oligopoly In an oligopoly market, few sellers are found to sell differentiated or homogenous product to a considerable large pool of buyers. This form of market structure is considered in between the two states of market monopolistic competition and monopoly (Tyers 2015). Like monopolistic competition, there are sellers dominating their own brand product and like monopoly, there are price controls enjoyed by the few large sellers. Some of the key features of oligopoly markets are given below Figure 1: Major characteristic of oligopoly market (Source: Carlton and Perloff 2015) Interdependence in the strategies of sellers is an important feature of this market. This often leads to price war in the market. Rival sellers engaged in price war to undercut others share. In the price war those who have cost advantage in production dominates other (Elsner, Heinrich and Schwardt 2014). Woolworth and Coles, having such cost advantage wins in the price war and dominates grocery market. Duopoly The presence of two dominating seller in the oligopoly market reduces the oligopoly form to a duopoly one. Here, the strategies of two sellers are interconnected (Dunne, et al. 2013). This interdependence of the two firms is shown in the following diagram. Figure 2: Equilibrium in the duopoly market (Source: As created by Author) Behaviour of the firms are captured by their respective reaction functions. Equilibrium in the market is determined at the intersection points of two reaction curves. Monopoly Another reduced form of market structure is monopoly market. In the monopoly market, there is one seller controlling the entire market (Brander and Spencer 2015). This is a highly restrictive market where new entry or exit in the market is almost ceased. This gives the monopolist advantage of maintaining a supernormal profit in the market in contrast to competitive market that ends with just a normal profit (Baldwin and Scott 2013). Figure 3: Monopoly Market with Supernormal profit (Source: As created by Author) Woolworths and Coles that are now considered to form a duopoly can be a monopoly player by leaving the other behind. Recommendation Excessive concentration in market is not desirable. It hurts the economic health and consumer interest in the market. Hence, policymakers should design policies to break the concentration. One way is to encourage competition in the market. For this, medium and small retailers should be allowed to enter in the supermarket. Sometimes, exclusivity clause in the lease agreement restricts small or medium retailers from doing business in certain areas. Federal government should relax such restriction in lease agreement. Conclusion The news article indicates the influence of Woolworths and Coles in the grocery market in Australias supermarkets. Several factors affect the formation of duopoly structure in the grocery market. Among those, the major factor is high penalty rate increasing the attrition power of the two- retailers. High concentration in the supermarket has an adverse affect on buyers by reducing their surpluses in term of giving entire price control to the duo sellers. Measures should be taken to reduce the concentration and promote competition. References Baldwin, W. and Scott, J., 2013.Market structure and technological change(Vol. 18). Taylor Francis. Brander, J.A. and Spencer, B.J., 2015. Intra-industry trade with Bertrand and Cournot oligopoly: The role of endogenous horizontal product differentiation.Research in Economics,69(2), pp.157-165. Carlton, D.W. and Perloff, J.M., 2015.Modern industrial organization. Pearson Higher Ed. Dunne, T., Klimek, S.D., Roberts, M.J. and Xu, D.Y., 2013. Entry, exit, and the determinants of market structure.The RAND Journal of Economics,44(3), pp.462-487. Elsner, W., Heinrich, T. and Schwardt, H., 2014.The microeconomics of complex economies: Evolutionary, institutional, neoclassical, and complexity perspectives. Academic Press. Heffernan, M. (2017).Woolworths, Coles told it's not just the prices, stupid. [online] The Sydney Morning Herald. Available at: https://www.smh.com.au/business/retail/woolworths-coles-told-its-not-just-the-prices-stupid-20170302-gupq3l.html [Accessed 20 Aug. 2017]. NewsComAu. (2017).Business leader savages supermarkets. [online] Available at: https://www.news.com.au/finance/business/retail/small-business-chief-savages-coles-and-woolies-and-their-trade-union-ally/news-story/313cad799dc9df6c4b51dcfa36de2bb3 [Accessed 20 Aug. 2017]. Tyers, R., 2015. Service Oligopolies and Australia's Economy?Wide Performance.Australian Economic Review,48(4), pp.333-356.