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With reference to Figure 1 and Extract A, explain one likely reason for the change in the four-firm concentration ratio of the supermarket sector between 2010 and 2015 - Edexcel - A-Level Economics A - Question 6 - 2017 - Paper 1
Question 6
With reference to Figure 1 and Extract A, explain one likely reason for the change in the four-firm concentration ratio of the supermarket sector between 2010 and 20... show full transcript
Worked Solution & Example Answer:With reference to Figure 1 and Extract A, explain one likely reason for the change in the four-firm concentration ratio of the supermarket sector between 2010 and 2015 - Edexcel - A-Level Economics A - Question 6 - 2017 - Paper 1
Step 1
Explain one likely reason for the change in the four-firm concentration ratio of the supermarket sector between 2010 and 2015.
Answer
The four-firm concentration ratio in the supermarket sector likely increased due to intensified competition among the leading supermarkets, particularly Tesco, Sainsbury's, Morrison's, and Aldi. These supermarkets engaged in aggressive price wars to attract cost-conscious consumers. As evidenced in Figure 1, the market share of Tesco declined from 28.6% in 2010 to 28.6% in 2015, but maintained a lead over competitors. The combined market share of the top four supermarkets grew, leading to greater concentration as smaller players struggled to compete, forcing some out of the market.
Step 2
Discuss the possible impact of supermarket monopoly power on both food suppliers and consumers.
Answer
Supermarket monopoly power can have significant impacts on food suppliers. These suppliers may face pressure to reduce prices, often resulting in lower profit margins and compromising quality. This power imbalance can also lead to difficulties for smaller suppliers in securing contracts, as they may lack the negotiating abilities to compete with larger suppliers.
For consumers, monopoly power may lead to higher prices and reduced choices in the long term, as supermarkets consolidate their position. Although consumers benefit from lower prices during competition, the potential for higher prices post-monopoly may lead to decreased overall welfare.
Step 3
Examine measures the government might use to restrict the monopoly power of supermarkets.
Answer
Governments can implement several measures to restrict the monopoly power of supermarkets.
- Antitrust Laws: These laws can prevent mergers that would significantly reduce market competition.
- Price Regulation: Governments may monitor and regulate prices to prevent exploitative pricing strategies.
- Support for Small Suppliers: Providing grants or subsidies can help smaller suppliers survive against larger supermarket chains, thereby promoting competition.
- Transparency Regulations: Implementing regulations that require supermarkets to disclose pricing and procurement practices can help ensure a fairer market.
Step 4
Assess the extent to which 'information gaps' (Extract B, lines 5 and 6) and 'irrational behaviour' (Extract B, line 11) are the main issues facing supermarkets.
Answer
Information gaps may indeed be a significant issue affecting supermarkets, where lack of accurate data regarding consumer preferences can lead to overstocking or understocking of products, contributing to food waste.
On the other hand, irrational behavior by consumers, such as impulse buying and lack of awareness about the true cost of waste, also creates challenges. This behavior can lead to food being purchased without consideration of actual needs, contributing to both personal and national levels of waste. While both factors are important, their impact may vary; information gaps are systemic issues, while irrational behavior reflects individual choices.