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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 saw a notable increase due to heightened competition among the leading supermarkets. In 2015, the combined market share of the top four firms (Tesco, Sainsbury's, Morrisons, and Asda) grew significantly, primarily resulting from aggressive price-cutting strategies implemented to retain customer loyalty amidst a price war. This competitive pressure led to smaller competitors, like Aldi and Lidl, gaining market share but, at the same time, reinforced the dominance of the key players through increased buyer consolidation.
Step 2
Discuss the possible impact of supermarket monopoly power on both food suppliers and consumers.
Answer
Supermarket monopoly power can create several adverse effects for food suppliers. With larger market shares, monopolistic supermarkets can exert significant pressure on suppliers to lower prices, thereby shrinking their profit margins. This can lead to a decrease in the number of suppliers willing to do business with dominant supermarkets, resulting in reduced competition and fewer choices for consumers.
For consumers, the effects are mixed. On one hand, lower prices due to economies of scale can be advantageous; however, reduced competition may lead to poorer product quality, less innovation, and fewer choices in the long term. Furthermore, reliance on a few powerful retailers could lead to price fixing and increased prices if suppliers reduce in number.
Step 3
Examine measures the government might use to restrict the monopoly power of supermarkets.
Answer
Governments may employ various measures to mitigate the monopoly power of supermarkets. One approach could be enforcing stricter antitrust laws to prevent mergers and acquisitions that reduce competition. Regulatory bodies might also impose price regulation to ensure fair pricing for consumers and suppliers. Additionally, promoting transparency in the supply chain can help retain competitive dynamics, while offering support to smaller supermarkets or local producers can diversify the market, creating a more balanced retail environment.
Step 4
Assess the extent to which 'information gaps' (Extract B, lines 5 and 6) and 'traditional behaviour' (Extract B, line 11) are the main issues facing food suppliers.
Answer
'Information gaps' significantly hinder food suppliers' ability to forecast demand and manage stock levels effectively. This can lead to food waste and financial losses. Additionally, if suppliers lack access to crucial market data, they may struggle to compete with larger supermarkets who possess better analytics capabilities.
On the other hand, 'traditional behaviour,' which refers to reliance on established practices, can restrict innovation and responsiveness to changing market conditions. While this can be an issue, the pressing nature of information gaps arguably poses a more critical challenge, as suppliers may not adapt their strategies effectively without adequate insights into market trends and consumer preferences.