Duopoly in Australian Supermarket Market

A duopoly refers to a market structure where two firms dominate, exhibiting characteristics of oligopolies such as barriers to entry, interdependent actions, and non-price competition. The Australian retail market is an example of this, with Woolworths Ltd and Coles Pty Ltd being the largest supermarket chains. Woolworths has adopted strategies like GEMMnet and a company website to remain ahead in the market, while Coles focuses on controlling prices through its significant market share.

A duopoly is an oligopoly market structure that contains two firms and it is the
most basic form of oligopoly. The term duopoly is also used to describe any
market where two firms dominate with a significant market share.As an
oligopoly, a duopoly incorporates oligopolistic characteristics and undertakes
oligopolistic behaviour. It has all the characteristics of oligopoly except for the
number of sellers. Such as significant barriers to entry, interdependent actions
and non-price competition.
Barriers to entry are a vital characteristic that differentiates an oligopoly from
other market structures. Barriers to entry make it difficult for firms to enter the
industry and this causes existing firms to maintain greater market control.
Interdependent actions imply that firms must take into consideration the
reactions of their competitors to any change in price and output. Non-price
competition is a method of competition adopted by oligopoly firms and is used
because firms find it difficult to compete through prices. It involves advertising
and marketing strategies to develop brand loyalty among customers.
The Australian retail market consists of almost 140,000 retail businesses with a
few major players in the in the supermarket sector. The key players are
Woolworths Ltd, Coles Pty Ltd and others, such as ALDI and IGA. The retail
market is one of Australia’s largest employers and is a vital contributor to the
Australian economy. In this essay I will be addressing the two largest
supermarket chains that dominate the supermarket industry, Woolworths and
Coles (owned by Wesfarmers Group and Woolworths Limited respectively).
The Australian economy experienced fast improvement and development which
in the end prompted the development and expansion of the Australian food
retail sector after the 1950’s. The Australian food retail sector has continued to
develop and has emerged has one of the fundamental mainstays of the
Australian economy. The rapid development of the Australian economy led to
the emergence of Woolworth’s and Cole’s first by the 1960s.The supermarket
retail sector in Australia has the distinction of being one of the most
concentrated in the world (Wardle and Baranovic, 2009: 477). It was indicated
by the Australian Competitions and Consumer Council (ACCC) that the
Australian grocery industry is commanded by two key players, Coles and
Woolworths.

Woolworths has become the largest supermarket chain in Australia due to
acquisition and expansion. As of 2016, Woolworths holds 37.3% market share
and is currently operating 961 stores across Australia and has over 111,000
employees. On the other hand Coles hold 32.5% of the market and is operating
776 stores across Australia and has over 100,000 employees. There are different
rivals in the market for example, free wholesalers and retailers such as ALDI
and IGA. As of 2016, ALDI‘s market share is 11.6% and IGA retained its share
at 9.7%. However these stores could not compete with Coles and Woolworths
and this two largest supermarket chains still have a major influence to control
prices.
Analyzing Woolworths from the external environment it is evident that
Woolworths has adopted several strategies to be the leading supermarket chain
in Australia. It was the first major retailer that adopted GEMMnet (Global
Electronic Marketing& Merchandising Network) in 1994. It is also one of the
first retailers to develop a company website. It has expanded its business
operations in New Zealand and India to capitalize on its market strength and
sustain its growth in the industry.

The intensified competition that retail industry faces with the expanding number
of new players in both the local and global markets has constrained retailers to
analyze and update their operations and promoting methodologies