SUPERMARKET

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SUPERMARKET
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Introduction

• In Hong Kong, supermarket is extremely
  essential. Many people go to supermarket
  frequently. Supermarket provides retailing
  service. People can buy their daily stuff in
  supermarket.Supermarket has its market
  structure. We will explain further in this
  project.

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The market structure (1)

• Supermarket belongs to oligopolyAn oligopoly is
  a market dominated by a few large suppliers. The
  degree of market concentration is very high (i.e.
  a large of the market share is taken up by the
  leading firms). Firms within an oligopoly produce
  branded products (advertising and marketing are
  important features of competition within such
  market) and there are also barriers to entry.

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The market structure (2)

• Another important characteristic of an oligopoly
  is interdependence between firms. This means that
  each firm must take into account the likely
  reactions of other firms in the market when it
  makes pricing and investment decisions. This
  creates uncertainty in such market - which
  economists seek to model through the use of game
  theory.

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The market structure (3)

• KEY FEATURES OF OLIGOPOLY
• A few firms sell heterogeneous or homogeneous
  goods.  
• Each firm produces branded products 
• Likely to be significant entry barriers into the
  market in the long run  which allows firms to
  make supernormal profits
• Interdependence between competing firms. 
  Businesses have to take into account likely
  reactions of rivals to any change in price and
  output

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The market structure (4)

• There are three major theories about oligopoly
  pricing 
• Oligopoly firms collaborate to charge the
  monopoly price and get monopoly profits   
• Oligopoly price and profits will be between the
  monopoly and competitive ends of the scale 
• Oligopoly prices and profits are "indeterminate"
  because of the difficulties in modeling
  interdependent price and output decisions

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All-or-nothing pricing (1)

• Sometimes, supermarkets will adopt all-or-nothing
  pricing. All-or-nothing pricing the sellers
  stipulate a fixed quantity at a given price and
  buyers may either take the entire quantity or
  take none.For example cans of soft drink sold
  in packages containing more than one unit.

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All-or-nothing pricing (2)

• A possible explanation of this pricing is the
  extraction of consumers surplus. The consumer is
  asked to pay his total use value for the quantity
  bought or he buys nothing. Thus, the total use
  value equals the total exchange value ( average
  use value equals the average exchange value or
  price ) and hence the seller extracts consumers
  surplus through the all-or-nothing pricing.

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Conclusion

• Supermarket is an oligopoly market structure. In
  an oligopoly market structure, it is dominated by
  a few large suppliers.
• On the other hand, supermarkets adopt
  all-or-nothing pricing to extract consumers
  surplus.

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• Group members Kam Man Hung ( leader ) Ma Hiu
  ChingChan Wai HonNg Ka Wai

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Reference

• Lam Pun Lee (2000)Microeconomics 12, Macmillan
• Li Wai Shing (1997) New Introductory Economics
  12 (2nd Edition), Longman