Food Retail Sector in Australia

The australian food retail sector is considerd as an oligopolistic market structure which is defined as the existence of few sellers within the market, selling products which are close substitutes of each other. There is an existence of intense price competition in the within the market. Many researchers and the market pattern of Australian food retail market suggest the existence of an oligopolistic market structure of the market. This essays studies an oligopolistic price competition and examines the similarities of the oligopolistic competition with the Australian food retail market.
An oligopolistic market structure is defined as the existence of few sellers within the market, selling products which are close substitutes of each other. The price charged by one firm is assumed as the price charged by the industry, since the products sold in the market are closed substitutes of each other (Isariyawongse, 2009). In most cases an Oligopoly firm has distinctive product production, branded products where methods of competition like the advertising are more important. (Isariyawongse, 2009) An Oligopolistic market can be characterised with the following features
1. Few sellers: An Oligopolistic market structure is characterised by the presence of a few sellers in the market. The firms are close competitors of each other and are dependent upon each other to make the output and pricing decisions. (Ruffin, 2009)
2. Homogenous or Unique Products: An oligopolistic firm is characterised with the firms producing homogenous products or a few firms producing unique products. The output can be identical or distinctive from each other. Let us take the example of breakfast cereals in the Australia where there are few firms like Kellogg’s and nestle are producing distinctive products. (Ruffin, 2009)
3. Entry and Exit: A firm cannot enter an oligopolistic market structure as there are huge entry costs that exist within the market structure as the market is extremely competitive in nature. Also, Exit costs are high as the firms may be producing unique products which do not have close substitutes in the market. (Ruffin, 2009)
4. Imperfect Dissemination of Information: The biggest characteristic of the oligopolistic market structure is the presence of imperfect information available to buyers. Buyers do not have complete access to the market information and often are given the information provided by the firms, like the selling price etc. The price given to the buyers may be inclusive of the advertising costs. (Hirschey, 2000)
The Australian food retail sector represents an oligopolistic market structure evident from the behaviour of the firms in the market, as well as the nature of price discrimination and the flow of information in the market. The Australian economy experienced rapid growth which eventually led to the growth and development of the Australian retail sector as well after 1950’s onwards. (FED, 2008) The Australian food retail sector thrived and has emerged has one of the strong holds of the Australian economy. In the year 2003-2004 the sector experienced a profit of 69%, which is an indicator of a high performing sector. The industry developed with a few sellers stepping thus indicating an emergence an Oligopolistic market structure. The analysis below describes the oligopolistic nature of the Australian food retail industry. (FED, 2008)
The retail industry thrived and development owning to the increase in demand for food products and the availability of all products at convince of the consumers. The Rapid urbanization led to the development of the two current Australian retail giants Woolworth’s and Cole’s by the end of the 1960’s. Further with the demand for discount stores picking up and to target the new market retailers like Franklins, and half price stores Bi Lo, Shoey’s, also emerged , but these could not garner as much success as Woolworth’s and Coles. Till today Woolworth’s and