This commentary specifically addresses oligopoly supermarkets and farmers as monopolistic competition that impacts the milk industry and how it affects consumers in the market. This article addresses the pressure that is placed upon suppliers of milk by the major retailers.
This article outlines the control over the milk market that the supermarkets have over suppliers, working as an oligopoly. Therefore, the advantages and disadvantages will be analysed with the oligopoly characteristics, kinked demand curve and some principals of oligopoly.
An oligopoly is defined as “a large proportion of the industry’s output that is shared by just a small number of firms”. In this article, it is shown that supermarkets have the major advantage and has …show more content…
With this assumption, each oligopoly will face a kinked demand curve, as the one above. The diagram shows two demand curves coming to form one bent (or kinked) demand curve. This can be seen with the demand curve D as it changes the angle of the curve after the curve hits the price at P1. It illustrates that the implication of the constant MR curve is that because prices are ‘sticky’ in the short-run, an oligopolist will be hesitant to change the price. Retailers are lowering the prices, squeezing milk suppliers and pressuring them to …show more content…
The assumptions here are that there are a large number of small-scale firms, there are no barriers to entry or exit, firms are profit maximisers, there is perfect knowledge in the market and firms may produce slightly differentiated products. The farmers work as a monopolistic competition. Since there are no barriers to entry or exit, new farmers can join the milk industry by supplying their milk. In monopolistic competition, if a farmer raises its price, it will lose more sales because the buyers now have substitutes, i.e. other farmers, they can switch to. The farmers can use price competition to make buyers purchase their milk, which occurs when a firm lowers its price to attract customers away from rival
This article outlines the control over the milk market that the supermarkets have over suppliers, working as an oligopoly. Therefore, the advantages and disadvantages will be analysed with the oligopoly characteristics, kinked demand curve and some principals of oligopoly.
An oligopoly is defined as “a large proportion of the industry’s output that is shared by just a small number of firms”. In this article, it is shown that supermarkets have the major advantage and has …show more content…
With this assumption, each oligopoly will face a kinked demand curve, as the one above. The diagram shows two demand curves coming to form one bent (or kinked) demand curve. This can be seen with the demand curve D as it changes the angle of the curve after the curve hits the price at P1. It illustrates that the implication of the constant MR curve is that because prices are ‘sticky’ in the short-run, an oligopolist will be hesitant to change the price. Retailers are lowering the prices, squeezing milk suppliers and pressuring them to …show more content…
The assumptions here are that there are a large number of small-scale firms, there are no barriers to entry or exit, firms are profit maximisers, there is perfect knowledge in the market and firms may produce slightly differentiated products. The farmers work as a monopolistic competition. Since there are no barriers to entry or exit, new farmers can join the milk industry by supplying their milk. In monopolistic competition, if a farmer raises its price, it will lose more sales because the buyers now have substitutes, i.e. other farmers, they can switch to. The farmers can use price competition to make buyers purchase their milk, which occurs when a firm lowers its price to attract customers away from rival