Economic Assignment: Monopolies, Duopoly, and Oligopolies in Australia

This report analyzes the market structures of monopolies, duopolies, and oligopolies within the Australian economy, with a specific focus on the grocery market dominated by Woolworths and Coles. It examines the characteristics of oligopolies, duopolies, and monopolies, providing diagrams to illustrate market equilibrium and profit scenarios. The study highlights the influence of factors such as high penalty rates and attrition policies on the formation of duopolies, and their impact on consumer surplus and market competition. Furthermore, the report explores the economic theories and concepts related to these market structures. It also recommends policies to foster competition and reduce market concentration, such as relaxing exclusivity clauses in lease agreements to encourage the entry of small and medium-sized retailers. The conclusion emphasizes the need for measures to mitigate the adverse effects of market concentration and promote a more competitive environment.

Running head: ECONOMIC ASSIGNMENT
Monopolies, Duopoly and Oligopolies in Australia
Name of the Student
Name of the University
Author note

1MONOPOLIES, DUOPOLY AND OLIGOPOLIES IN AUSTRALIA
Table of Contents
Introduction................................................................................................................................2
Essence of the story....................................................................................................................2
Economic theories and concept..................................................................................................3
Oligopoly................................................................................................................................3
Duopoly..................................................................................................................................4
Monopoly...............................................................................................................................4
Recommendation........................................................................................................................5
Conclusion..................................................................................................................................5
References..................................................................................................................................7

2MONOPOLIES, DUOPOLY AND OLIGOPOLIES IN AUSTRALIA
Introduction
Number of buyers and sellers define the characteristics of any market. Fewer the
number of sellers larger is the market power of the seller. Supermarkets generally contain few
large sellers. Hence, one can expect an oligopoly structure for the supermarkets. In the paper,
supermarket structure for grocery sellers in Australia is observed. Two big retailers
Woolworth and Coles are almost successful in eliminating most of their rivals and thus form
a duopoly. The power of these two retailers is expected to influence the economic health of
Australia.
Essence of the story
Chief of small business council, in a published article gives indication of possible
duopoly in grocery business. While giving own opinion concernment of Shop Distributive
and Allied Employees Association (SDA) is linked with the fact (NewsComAu 2017). There
are there big organizations that greatly influence economic condition of Australia. The high
or increasing penalty rate leads to closure of small business. This provides strength to large
retailers. Thus the attrition policy of SDA indirectly assist the duopoly structure in the
economy. Relaxation of regulation by SDA helps Woolworths and Coles to increase their
market share and boosts SDA’s membership. Therefore, Woolworths and Coles need not
focus much on increasing their market share by improving their quality of service or
providing additional discount or facilities to the customers (Heffernan 2017). The cost
advantages enjoyed by them and increasing attrition are enough to expand their business.
In the article, the chief has rejected the common suggestion for the supermarkets such
as acting as pharmacies or arranging Lotto tickets sell. These suggestions are expected to

3MONOPOLIES, DUOPOLY AND OLIGOPOLIES IN AUSTRALIA
destroy narrow pace of shopping leaving large shopping centres with large supermarkets and
number of franchises as only option for the customers.
Economic theories and concept
Oligopoly
In an oligopoly market, few sellers are found to sell differentiated or homogenous
product to a considerable large pool of buyers. This form of market structure is considered in
between the two states of market – monopolistic competition and monopoly (Tyers 2015).
Like monopolistic competition, there are sellers dominating their own brand product and like
monopoly, there are price controls enjoyed by the few large sellers.
Some of the key features of oligopoly markets are given below
Figure 1: Major characteristic of oligopoly market
(Source: Carlton and Perloff 2015)
Interdependence in the strategies of sellers is an important feature of this market. This
often leads to price war in the market. Rival sellers engaged in price war to undercut other’s
share. In the price war those who have cost advantage in production dominates other (Elsner,

4MONOPOLIES, DUOPOLY AND OLIGOPOLIES IN AUSTRALIA
Heinrich and Schwardt 2014). Woolworth and Coles, having such cost advantage wins in the
price war and dominates grocery market.
Duopoly
The presence of two dominating seller in the oligopoly market reduces the oligopoly
form to a duopoly one. Here, the strategies of two sellers are interconnected (Dunne, et al.
2013). This interdependence of the two firms is shown in the following diagram.
Figure 2: Equilibrium in the duopoly market
(Source: As created by Author)
Behaviour of the firms are captured by their respective reaction functions.
Equilibrium in the market is determined at the intersection points of two reaction curves.
Monopoly
Another reduced form of market structure is monopoly market. In the monopoly
market, there is one seller controlling the entire market (Brander and Spencer 2015). This is a

5MONOPOLIES, DUOPOLY AND OLIGOPOLIES IN AUSTRALIA
highly restrictive market where new entry or exit in the market is almost ceased. This gives
the monopolist advantage of maintaining a supernormal profit in the market in contrast to
competitive market that ends with just a normal profit (Baldwin and Scott 2013).
Figure 3: Monopoly Market with Supernormal profit
(Source: As created by Author)
Woolworths and Coles that are now considered to form a duopoly can be a monopoly
player by leaving the other behind.
Recommendation
Excessive concentration in market is not desirable. It hurts the economic health and
consumer interest in the market. Hence, policymakers should design policies to break the
concentration. One way is to encourage competition in the market. For this, medium and
small retailers should be allowed to enter in the supermarket. Sometimes, exclusivity clause
in the lease agreement restricts small or medium retailers from doing business in certain
areas. Federal government should relax such restriction in lease agreement.

6MONOPOLIES, DUOPOLY AND OLIGOPOLIES IN AUSTRALIA
Conclusion
The news article indicates the influence of Woolworths and Coles in the grocery
market in Australia’s supermarkets. Several factors affect the formation of duopoly structure
in the grocery market. Among those, the major factor is high penalty rate increasing the
attrition power of the two- retailers. High concentration in the supermarket has an adverse
affect on buyers by reducing their surpluses in term of giving entire price control to the duo
sellers. Measures should be taken to reduce the concentration and promote competition.

7MONOPOLIES, DUOPOLY AND OLIGOPOLIES IN AUSTRALIA
References
Baldwin, W. and Scott, J., 2013. Market structure and technological change(Vol. 18). Taylor
& Francis.
Brander, J.A. and Spencer, B.J., 2015. Intra-industry trade with Bertrand and Cournot
oligopoly: The role of endogenous horizontal product differentiation. Research in
Economics, 69(2), pp.157-165.
Carlton, D.W. and Perloff, J.M., 2015. Modern industrial organization. Pearson Higher Ed.
Dunne, T., Klimek, S.D., Roberts, M.J. and Xu, D.Y., 2013. Entry, exit, and the determinants
of market structure. The RAND Journal of Economics, 44(3), pp.462-487.
Elsner, W., Heinrich, T. and Schwardt, H., 2014. The microeconomics of complex economies:
Evolutionary, institutional, neoclassical, and complexity perspectives. Academic Press.
Heffernan, M. (2017). Woolworths, Coles told it's not just the prices, stupid. [online] The
Sydney Morning Herald. Available at: http://www.smh.com.au/business/retail/woolworths-
coles-told-its-not-just-the-prices-stupid-20170302-gupq3l.html [Accessed 20 Aug. 2017].
NewsComAu. (2017). Business leader savages supermarkets. [online] Available at:
http://www.news.com.au/finance/business/retail/small-business-chief-savages-coles-and-
woolies-and-their-trade-union-ally/news-story/313cad799dc9df6c4b51dcfa36de2bb3
[Accessed 20 Aug. 2017].
Tyers, R., 2015. Service Oligopolies and Australia's Economy‐Wide Performance. Australian
Economic Review, 48(4), pp.333-356.

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