Market Structure in FMCG Industry of Australia

The paper analyses the importance of different market structure in FMCG industry of Australia and their characteristics. It also provides recommendations for the interested parties.

Running Head: Market Structure in FMCG Industry of Australia
Market Structures
FMCG Industry of Australia

Market Structure in FMCG Industry of Australia 1
Table of Contents
I. Introduction.............................................................................................................................2
II. Importance of Market Structure for the Interested Parties....................................................2
III. Types of Market Structure...................................................................................................2
IV. Economic Analysis..............................................................................................................3
(i) Monopoly...........................................................................................................................4
(ii) Oligopoly..........................................................................................................................4
(iii) Duopoly...........................................................................................................................5
(iv) Monopolistic Competition...............................................................................................5
(V) Recommendations...............................................................................................................5
(VI) Conclusion..........................................................................................................................6
(VII) References.........................................................................................................................7

Market Structure in FMCG Industry of Australia 2
I. Introduction
Fast-moving consumer goods (FMCG) are the everyday goods which are sold rapidly and at
comparatively low costs. These products are consumed directly by the customers (Kumar &
Joseph, 2014). These goods comprise of perishable or non-durable goods like beverages,
fruits, vegetables, processed food, toiletries and many other consumables. There are durable
goods like household care products, personal care, kitchen appliances and electronics (Patil,
2016). The demand for the FMCG goods is very high and frequent because of its regular use
and low shelf life or perishable nature. The profit margin is relatively low but the demand and
market share and turnover are very high for the producers. The production is done in large
volumes and the distribution network is widespread. The paper analyses the importance of
different market structure in FMCG industry of Australia and their characteristics.
II. Importance of Market Structure for the Interested Parties
The market structure has a very important role to play in the FMCG industry of Australia
because it determines the level of competition and profit margins for the firms. It helps to
analyse the number of firms, their sizes and their offered products. This helps in determining
the market performance and competition (Martin, 2012). Market structure plays an important
role in determining the firm’s performance (Hackl, Kummer, Winter-Ebmer, & Zulehner,
2014). The structure determines the entry and exit of firms in an industry. The new firms can
access the post entry profits while the old firms can access the losses associated with exit.
This helps the firms to make feasible policies and strategies to maximise their profits.
On the other hand, market structure analyses the availability of the commodities and the
prevalent prices in the market. This becomes an important area for the consumers who are
rational and desire to pay lower prices for their demanded products. The quality of the
product is also affected by the structure of the market.
III. Types of Market Structure
Market structure can be perfectly competitive or imperfectly competitive. The two have
following characteristics:

Market Structure in FMCG Industry of Australia 3
Figure 1: Difference in the Perfect Competitive and Imperfect Competitive Market Structures
IV. Economic Analysis
Strategies and policies in the FMCG industry in Australia will be based on the type of market
structure prevailing. The market structure can be perfectly competitive or imperfectly
competitive. In case of perfect competition, the producer earns only normal-profits which are
a disincentive for the new firms entering the market. The most favourable market structure
from the point of view of producers is monopoly where he can earn high super-normal
profits. But monopoly is not a favourable situation from the view point of the society. The
monopolist charges high and differentiated prices from the consumers. There is inefficient
production in monopoly (Zhao, 2011). Monopoly and perfect competitions are two extremes.
Monopoly is followed by duopoly, oligopoly and monopolistic competition. Each market has
certain characteristics which are as follows:
Perfect
Competition
Large number of
Sellers
Homogeneous
Products
Close Substitutes
available
FIrms are price
Takers
Free entry and exit
Perfect Information
and no transaction
cost
Imperfect
Competition
Few or multiple
Sellers
Firms are price
makers
No or Few restrictions
to entry (The
Economic Times,
2018)
Imperfect Information
and transaction cost
No or few close
substitutes
Heterogeneous
Products

Market Structure in FMCG Industry of Australia 4
Imperfect Competition
Basis Monopoly Oligopoly Monopolistic
Competition
Number of
Sellers
One Few dominating
sellers
Many
Product Unique Differentiated Differentiated
Number of
Substitutes
No close
substitutes
Pricing Strategy Much higher
than that in the
Perfect
Competition
Much higher
than that in the
Perfect
Competition
Higher than
Perfect
Competition
Price taker or
maker
Price
Differentiation
Price maker Price maker
Selling Cost No or low
Selling cost
Very high
Selling cost
Very high
Selling cost
Interdependence Independent
firms
Interdependence
among firms
Interdependence
among firms
Figure 2: Characteristics of different market structures
(Source: by author)
(i) Monopoly
In case of monopoly structure in the FMCG industry, there will be single seller dictating the
market and charging high prices from customers. The firm will sell a unique product with no
near substitutes. Monopolist has perfect information about the market. Monopoly can be
natural, technical, government given or other. If there is monopoly in the market of FMCG
industry, then the firm and industry will be the same. There will be high prices and
inefficiency in the production (Simpson, 2010). Being the only seller, there is no or very little
selling cost associated.
(ii) Oligopoly
Oligopoly is a market structure where there are few sellers who sell slightly different good.
The firms in the FMCG industry will compete on the basis of quality and services. There is
no price war and charge mutually agreed upon prices. The firms are interdependent on each

Market Structure in FMCG Industry of Australia 5
other for the strategies (Audu, Hassan, & Aboki, 2014). In the given industry, a possible
oligopoly will lead to collusion of firms. They will charge higher prices close to the ones
prevailing in the monopoly.
(iii) Duopoly
Duopoly in the FMCG industry will have two sellers dictating the market. The two firms
enjoy a large market share. Duopoly can be viewed as a form of oligopoly where firms
collude to manipulate the pricing. The characteristics will be similar to oligopoly, which
include slight product differentiation and relative free entry and exit. The firms will be price
makers.
(iv) Monopolistic Competition
Monopolistic competition is present in the contemporary Australian FMCG industry. There
are many firms of various sizes competing against each other. The firms face high selling
costs to attract the customers and survive in the industry. The firms are price makers because
of slightly differentiated goods. There are firms like Wesfarmers, Woolworths, Coca-Cola
Amatil and many others. There are other MNCs like Unilever, Johnson and Johnson, Procter
& Gamble and Nestle as well.
(V) Recommendations
In the present, there is monopolistic competition governing most of the markets. There are
large number of producers providing different qualities and prices of goods. With the
integration of economies through globalisation, the competition intensifies. There are infinite
options available for the customers to switch to. The role of the policy makers and the
producers is to eliminate the close availability of substitutes. The key to survival lies in
innovation and refinement of services through R&D. Innovation can be in goods as well as
the services provided to the customers. They can also invest in the advertisements and
improve the service quality.
Government should encourage firms to enter the market where there is low competition. This
will lead to efficiency in production and benefit the society as a whole. On the other hand, it
should provide patents and copyrights to promote cost-efficient which allocate the scarce

Market Structure in FMCG Industry of Australia 6
resources judiciously. The rights can be given to the firms for certain periods which will
move firm towards efficiency in the long run.
(VI) Conclusion
Market structure plays an important role in the policy formulation and strategy planning. In
the FMCG industry of Australia there is intense level of competition from various small and
large firms. The globalisation intensifies this competition and firms need to invest in
innovation and advertisement through R&D. Innovation can help to differentiate the products
and services which will attract the customers towards the brand. Brands can be differentiated
on the basis of the product quality as well the services provided to the customers at every step
of shopping. Meanwhile, the government should look in the interests of the society. It thus
needs to maintain a balance between the cost to the customer (achieved through efficiency)
and the incentives to the producers (by sufficient rights of innovation).

Market Structure in FMCG Industry of Australia 7
(VII) References
Audu, A. A., Hassan, D. N., & Aboki, H. (2014, August). The Conquering Strategies of
Oligopoly Firms. A review on entry Strategies of Tesco Company Plc in the UK and
beyond. IOSR Journal of Business and Management, 16(08), 06-15. Retrieved April
12, 2018, from
http://iosrjournals.org/iosr-jbm/papers/Vol16-issue8/Version-2/B016820615.pdf
Hackl, F., Kummer, M. E., Winter-Ebmer, R., & Zulehner, a. C. (2014, March 01). Market
Structure and Market Performance in E-Commerce. European Economic Review, 68,
199-218. Retrieved April 12, 2018, from
ftp://ftp.zew.de/pub/zew-docs/dp/dp11084.pdf
Kumar, N. A., & Joseph, J. (2014). A Study on Consumer Behavior towards Fmcg Products
among the Rural Suburban Hhs of Ernakulam. Journal of Global Economics, 02(04),
1-10. Retrieved April 12, 2018, from https://www.omicsonline.org/open-access/a-
study-on-consumer-behavior-towards-fmcg-products-among-the-rural-suburban-hhs-
of-ernakulam-2375-4389.1000127.pdf
Martin, S. (2012, February 03). Market Structure and Market Performance. Review of
Industrial Organization, 40(02), 87-108. Retrieved April 12, 2018, from
http://www.krannert.purdue.edu/faculty/smartin/vita/SMrio2012.pdf
Patil, P. (2016, February). An Overview of Indian FMCG Sector. Indian Journal of Research,
05(02). Retrieved April 12, 2018, from
https://www.researchgate.net/publication/314216580_An_Overview_of_Indian_FMC
G_Sector
Simpson, B. P. (2010). Two Theories of Monopoly and Competition: Implications and
Applications. Journal of Applied Business and Economics, 11(02), 139. Retrieved
April 12, 2018, from
http://digitalcommons.www.na-businesspress.com/JABE/Jabe112/SimpsonWeb.pdf
The Economic Times. (2018). Imperfect Competition. Retrieved April 12, 2018, from The
Economic Times: https://economictimes.indiatimes.com/definition/imperfect-

Market Structure in FMCG Industry of Australia 8
competition
Zhao, B. (2011, November). Monopoly and Economic Efficiency: Perspective from an
Efficiency Wage Model. Modern Economy, 02(05), 830-833. Retrieved April 12,
2018, from https://file.scirp.org/pdf/ME20110500014_16817134.pdf