What are oligopolistic industries in the UK?

Oligopolistic Industries in the UK

An oligopoly is a market structure characterized by the presence of a small number of large firms that dominate the majority of market share. In the UK, the supermarket sector exemplifies an oligopoly, where a handful of major players control a significant portion of the market.

Key Features of an Oligopoly

• Few Major Players: Oligopolistic industries are concentrated with a limited number of dominant firms. In the UK supermarket sector, the “Big Four” grocers (Tesco, Sainsbury’s, Asda, and Morrisons) account for over 70% of market share.
• Barriers to Entry: Barriers to entry in oligopolistic industries are high, limiting the ability of new firms to enter the market. These barriers can include economies of scale, patents, and regulatory barriers.
• Interdependence: Firms in an oligopoly are highly interdependent. The actions of one firm can have a significant impact on the profitability and market position of its competitors.
• Non-Price Competition: Rivalry in oligopolistic industries often manifests in non-price strategies, such as product differentiation, advertising, and marketing. This is because price wars can be highly damaging to the profitability of all firms in the market.

The UK Supermarket Sector: An Oligopoly

The UK supermarket sector is a classic example of an oligopoly. The “Big Four” grocers have a combined market share of over 70%, leaving only a small share for smaller players. Barriers to entry are high, making it difficult for new supermarkets to compete with the established giants.

As a result, competition in the supermarket sector is intense but often revolves around non-price strategies. Supermarkets differentiate their offerings through product lines, customer loyalty programs, and marketing campaigns. They also engage in price matching and promotional deals to attract and retain customers.

Implications of Oligopoly

Oligopolistic markets can have several implications for consumers and the economy as a whole:

• Reduced Competition: Oligopolies can reduce competition, leading to higher prices and less innovation.
• Market Power: Oligopolistic firms have significant market power, allowing them to influence market prices and conditions.
• Stability: Oligopolies tend to be more stable than other market structures, reducing volatility in prices and market share.
• Government Intervention: Oligopolistic markets can attract government intervention to promote competition and protect consumers from anti-competitive practices.