threat of new entrants in uk supermarket industry

Legal barriers: large food businesses will find it easier to comply with food safety standards.įirms can establish barriers through advertising and marketing. Britain's supermarkets have used a fall in property prices to acquire sites for shops. Natural advantages: for firms, such as having good retail sites. The problem comes when there are anti-competitive practices: supermarkets may be prepared to reduce prices for enough time to ‘drive out’ new entrants or existing businesses. This is because they can offer to buy in greater quantities from the manufacturers therefore the manufacturers will offer to sell for lower prices.

Scale economies: supermarkets can buy more cheaply from manufactures compared with the independents.

Tesco has also been criticised for selling products on Amazon and masquerading as a small business. Recently, there has been the growth of shadow brands in the UK grocery sector. However, there is a problem that some shops, which may be thought of as independents by consumers, are in fact owned by the major supermarkets. The reader needs to decide whether it is legitimate for a supermarket to offer special offers at the expense of independent shops. Major supermarkets can offer special offers, vouchers and longer opening hours to prevent small stores from competing. In practice, the threat of potential new entrants in the supermarket industry is limited. The basic model of monopoly suggests that there will be higher prices, inefficiency and a misallocation of resources.įeatures that lead to Barriers to Entry in the UK Grocery MarketĬapital costs: the purchase of an independent shop is cheap so it should be possible for a ‘new entrant’ to enter the industry. In 2011, these four supermarkets had a combined share of 76 percent of the UK grocery market. A four-firm concentration ratio would measure the market share of Asda, Morrisons, Sainsbury and Tesco. This measures the market share of the largest firms in an industry. (2003), Complete A-Z Economics Handbook, 2 nd edition, London: Hodder Arnold The big UK supermarkets may make supernormal profits, in the long run, because of barriers to entry. There are ‘barriers to entry’ which make it difficult for new entrants to come into the market and compete with existing firms. It is characterised by differentiated food retailers with well known brand names such as Asda, Morrisons, Sainsbury and Tesco.

Navigation: Home Page Comment Education Videosĭiscussion on Economics and UK Supermarkets: For A Level EconomicsĪn oligopoly: this is a market where there are a few large firms which dominate an industry.

Threat of new entrants in uk supermarket industry