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Morrison's Acquisition Of Safeway Inc.

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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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However it doesn’t have a large impact on the food industry as such as consumers need to purchase food in order to survive. Although they may decrease quantity of foods they choose to buy, they are still willing to purchase basic foods that will sustain their health. Consumers are more likely during an economic downfall to spend their money on foods they require rather than want. The company as a result obtains an advantage from its competitors as they produce long lasting food options, which allows consumer’s to save during tough times. This highlights an opportunity for the company as they produce healthier and simple food varieties which many customers desire.

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This means that if it is working so well for such a long time why not just continue Industrial food chain. Research also shows that “Fifty years ago, before the coming of giants, this country’s cows, pigs and poultry were mostly raised outdoors and sold, for whatever the spot market bore, at livestock auctions for cash”. this show meat is still being sold for cheap prices like it was 50 years ago. This also show why the industrial food chain is still going on now because of the price and the amount of restaurant and store that still use the industrial food

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In monopolistic competition, an industry contains a number of firms producing differentiated products. These firms act as individual monopolist, but additional firms enter a profitable industry until monopoly profits are competed away. Equilibrium is affected by the size of the market: A large market will support a larger number of firms, each producing at a larger scale and thus a lower average cost, than a small market. 4. International trade allows for the creation of an integrated market that is larger than any one country's market.

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Although, Morrisons have arrived lately to non-food retail compared to its competitors, however the retailer managed to effectively incorporate new products in short period of time by means of acquisitions of meat and seafood processing facilities, Flower World, Kiddicare, and others. One feature differentiating Morrisons from Asda, Sainsbury’s, and Tesco, is developed vertically integrated supply chain. The advantage of this model is that it gives greater control upon quality of fresh food products by closely collaborating with farmers. Morrisons’ owning of fresh food producing facilities improves its delivery time, and helps to avoid extra costs related to supply chain.

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Monopolist will be forced to lower prices from the start due to potential customers waiting for the cuts. Essentially, the monopolist companies are competing against their future alterations of price, where this behavior is even seen in more completive market that has the same effect as bring the prices down to values equal to the marginal cost. This can’t occur for companies selling fresh food (nondurable goods). However, durable goods can be stored for long periods of time thus monopolist flourish in grabbing all potential customers (Coase, 1972). For example, once Apple Inc. sells their newest model of Iphone to the market, they release new updated version of an Iphone so they can keep on selling their phones at the same prices without the need of cutting price to grab customers; they are achieving the same result as price reduction just by releasing a newer version of the Iphone.

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