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Morrison's Acquisition Of Safeway Inc.

1785 Words8 Pages

Four firm concentration ratio for the industry in 2015 is 71.6%. It has increased since 2000, when it totalled 67.3%. One reason of the increase is Morrisons acquisition of Safeway, a subsidiary of American Safeway Inc. The rise of the large supermarket chains has lead to the decline of small shops. Over the last 5 years the number of independent retailers decreased, from 35,000 to 25,000.

4.2 Economies of scale

The term economies of scale refer to savings that are made as a result of increasing size. It has allowed big chains to create steep barriers to entry. Another benefit is lower average costs with increased output. Their economies of scale have made food cheaper and they can also use it to make a good deal, both for shopper and …show more content…

The presence of barriers to entry makes the market less competitive and less contestable. Oligopoly is considered to have numerous barriers to entry, which vary from industry to industry. A new company will require minimum capital requirements, which involves sunk costs. Even though it would be hard to compete with existing ones, since they have millions of pounds for investment and a new company will more than likely not have these funds. Another advantage of existing firms is economies of scale. They can make use of their size in order to achieve a cheaper price. Lastly, there are certain government regulations, such as land use, which make the process of building new supermarkets harder.
4.7 Kinked Demand Curve

The kinked demand curve model assumes that a business might face a dual demand curve for its product based on the likely reactions of other firms to a change in its price or another variable. The assumption is that firms in an oligopoly are looking to protect and maintain their market share and that rival firms are unlikely to match another's price increase but may match a price fall. It also does not make sense for firms to reduce their price because demand is inelastic, which means that quantity doesn’t increase by much, but price falls massively, so the revenue actually

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