Principles of Economics: Wesfarmers Market Structure Report

This report provides an analysis of the Australian economy, focusing on the market structure of Wesfarmers, a major Australian conglomerate. It examines the macroeconomic framework, specifically the oligopoly market in which Wesfarmers operates, and explores the characteristics of this market, including the number of buyers and sellers, entry and exit conditions, and price determination. The report highlights Wesfarmers' market strategies, such as collusive pricing and non-price competition through advertising. Furthermore, the report investigates the short-run versus long-run profits within the oligopoly framework and discusses how macroeconomic theories are applied to real-life market scenarios. The analysis includes relevant figures and data to support the findings, concluding with an overview of the Australian economy's evolution and the role of Wesfarmers within its competitive landscape. The report references several academic sources to support its claims.

Running head: PRINCIPLES OF ECONOMICS
Principles of Economics
Name of the student:
Name of the University:
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Table of Contents
Introduction:....................................................................................................................................2
Information regarding the chosen organization:..............................................................................2
Market structure of the selected organization:.................................................................................3
Economic framework of the selected market:.................................................................................3
Characteristics of the selected market:............................................................................................6
Number of sellers and buyers:.....................................................................................................6
Entry to and exit conditions from the market:.............................................................................6
Short run versus long run profits:................................................................................................6
Price determination:.....................................................................................................................7
Non price competition:.................................................................................................................7
Conclusion:......................................................................................................................................7
Reference:........................................................................................................................................9

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Introduction:
Australian economy is one of the well-developed economy among all the western nations
and it has been facing high growth rate since decades. Over the last 27 year, the economy has
been budding with a good annual growth rate and it is aimed to achieve desired amount of
sustainability by the end of the 2020 (Hartwell, 2017). Over the year growth of the economy has
provided much amount of incentive to the producers to open new business in the nations and thus
it has become evident that it possess various market framework. For instance the dynamic market
nature of the Australian economy has aided it to evolve oligopoly, duopoly, perfect competition
and monopoly in different sector of the market (Hatfield-Dodds et al., 2015). This report is
aimed to aid to analyze the economics of Australian market with the help of a chosen industry
and an organization under the same framework. For the purpose of this analysis, this report will
use the Wesfarmers, which is one of the largest Australian conglomerate and operates under the
oligopoly market structure (Campbell, 2017). The report will analyses the market structure of the
selected organization and including all the characteristic of the chosen market it will portray how
macroeconomic theories are utilized to describe the real life market scenario.
Information regarding the chosen organization:
The selected organization for this report is the Wesfarmers, which is one of the largest
Australia’s largest listed company that operate in various sector. Developed back in 1914, the
firm has diverse range of business, which are liquor, supermarket, convenience store and
hospitality service (Kilroy and Schneider, 2017). Among these business, Wesfarmers is popular
for its supermarket business, which is the second largest super market chain in the Australia. The
firm has more than 530,000 shareholders and more than 220,000 active employees during 2017
(Islam, Jain & Haque, 2016). In addition to the supermarket chain, Wesfarmers is popular for the

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fertilizer, energy, safety products and chemical production that makes it a diversified business
group. Through the merger of the Coles Group Limited, the firm has become one of the largest
retailer in the Australia (Wang 2017). However, for this analysis, only the supermarket chain of
the Wesfarmers has been considered because it will not be possible for the researcher to include
all the different sector of the firm operates in different market scenario, which will make the
analysis more complex.
Market structure of the selected organization:
Analyzing the information regarding the Wesfarmers it can be seen that the firm operates
under oligopoly market, where there is only one large firm is present apart from the Wesfarmers
and along with this small number of firms are present (Market Structure: Why an Oligopoly?,
2018). Combining both of the large firms in the supermarket chain industry they enjoy
approximately 70% of the market. Contrary to this, the other competitors in the market enjoy
only 30% of the market share (Clements, Scott & Silvennoinen, 2016). Under the oligopoly
market, the firm aims to have collusive price in order to have great price and output. According
to the Trade Practices Act. The firm need to be responsible for the oligopolistic activity that can
provide unfair disadvantage to the consumers (Pridgen, 2018). Complying with the same
guideline Wesfarmers provide collusive pricing that provide benefit to the firm and generate
higher revenue for the firm through sell maximization.
Economic framework of the selected market:
From the above discussion regarding the Wesfarmers it is now clear that hthe firm
operates in the oligopoly market, which is known as the imperfect form of market competition.
According to the economic theory of the oligopoly it can be seen that, if there is small number of
suppliers in the market and large number of the buyers are present in the economy, then the

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market is said to be an oligopoly (Group, 2018). According to the (Ciliberto, Murry & Tamer,
2016), under oligopoly market scenario, information regarding the market and the move of the
rival is available to the market players, whereas the buyers do not have the information regarding
the best price that makes the marginal revenue kinked as shown in the figure 1.
Figure 1: Oligopoly kinked demand
Source: (Wesfarmers.com.au. 2018)
The firms under the oligopoly market are independent and they possess the choice of either to go
for collusive oligopoly or try out collaborating oligopoly that provide necessary amount of power
to the brand to act as a monopoly firm (Billand, 2015).
One of the main characteristics of the oligopoly is that there is barriers to enter the market
and when it comes to exiting the market, then a firm to face barriers too. In order to depending
upon the magnitude of market share and market controlling power, new entrants need to have

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large economies of scale to become viable in the market. In addition to this, oligopoly economy
face higher revenue compared to the perfect competition and it aids the firms operating under its
framework, face higher amount of profit as shown in the figure 2.
Figure 2: oligopoly revenue
Source: (Wesfarmers.com.au., 2018)
In order to deter the new entrants in the market present firms in oligopoly market opts for
the price cutting or collaborating oligopoly structure that provides the firm opportunity to act as
the monopoly that enjoys large amount of market share (Myatt & Wallace, 2018) However, it
may not be the case throughout the time. In certain cases, oligopoly firm let the new entrants
enter the market without any competition in order to enhance the profit of the market leader
through reducing the market share of the market leader.

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Characteristics of the selected market:
Number of sellers and buyers:
Wesfarmers operate in an oligopoly market, where large number of buyers are present
and the only few namely Woolworths, Wesfarmers itself IGA group, Aldi are present. Until
2007, there were 3 large market players which are Woolworths, Wesfarmers and Coles; however,
post 2007 Coles merged with the Wesfarmers that left only two large market player in the
supermarket organization of Australia (Cameron et al., 2015) Considering the other players like
IGA group and Aldi they occupies only 30% of the market share (Wesfarmers.com.au., 2018)
. Type of product:
Developed back in 1914, the firm has diverse range of business, which are liquor,
supermarket, convenience store and hospitality service (Kilroy and Schneider, 2017). In addition
to the supermarket chain, Wesfarmers is popular for the fertilizer, energy, safety products and
chemical production that makes it a diversified business group.
Entry to and exit conditions from the market:
Oligopoly market is hard to penetrate and thus the prevailing firms prefer to deter them
from enter. On the other hand exit barrier is hard too. Collusive pricing provides artificial
barriers to the firms to exit the market and so does happen in the case of Wesfarmers.
Short run versus long run profits:
Short run profit under the oligopoly in Australia is high and when it comes to long run
profit, then the firm enjoy normal profit due to the collusive pricing.

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Price determination:
Price is considered through collusive method and the Wesfarmers comply with the PTA
mechanism. Wesfarmers being the second largest firm in the market enjoys considerable amount
of power to decide the market price.
Non price competition:
As the mechanism of non-price competition Wesfarmers use price cutting policies. In
addition to this the firm use collusive pricing strategy to act as monopoly firm in case of any new
entrant wants to enter into the market. It has been observed that advertisement and marketing has
huge impact on the customer preference under the oligopoly market (Whisenant & Willenborg,
2016). Thus, besides the above mentioned non price competition, the firm use advertisement as
strategy to influence the consumers. On the other hand other player in the market utilize same
strategy to promote the respective brand that makes it hard for all the market players to succeed
in the market.
Conclusion:
From the above discussion it can be seen that Australian economy has evolved over the
time to become a competitive market with the presence of various industries in the economy. The
selected organization in the report was Wesfarmers, which operates under oligopoly market
structure and the marker is quite competitive in nature. Though there is many operators in the
industry where the Wesfarmers operate, however, most of the market share is concentrated in the
hand of two large market player. With the polarization of the market share between the two large
firms in the industry, oligopoly market provides an essence of duopoly. Market is free to enter,
however, due to large amount of market share is owned by the two large brand, new firm face
high amount of deterrent policies from the present market players. Under the recent financial

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crisis in the world market, the economy of the Australia has faced great amount of fall in its
goods and services demand that has curtailed the profit of the selected firm too. However, the
research has found that previous strong financial condition of the selected organization has
helped it to withstand against the recent economic shock. Thus, the report has found that during
post-recession period the selected firm has acted positively to determine the price of the
economy. To conclude the report has found that under the oligopoly market, Australian economy
has worked ideally and with the proper deterrent policies Wesfarmers has become where it is
now.

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Reference:
(2018). Wesfarmers.com.au. Retrieved 15 April 2018, from
https://www.wesfarmers.com.au/docs/default-source/default-document-library/2017-
annual-report.pdf?sfvrsn=0
Billand, P., Bravard, C., Durieu, J., & Sarangi, S. (2015). Efficient networks for a class of games
with global spillovers. Journal of Mathematical Economics, 61, 203-210.
Cameron, A. J., Sayers, S. J., Sacks, G., & Thornton, L. E. (2015). Do the foods advertised in
Australian supermarket catalogues reflect national dietary guidelines?. Health promotion
international, 32(1), 113-121.
Campbell, J. (2017). Insights from the company monitor: Wesfarmers. Equity, 31(8), 16.
Ciliberto, F., Murry, C., & Tamer, E. T. (2016). Market structure and competition in airline
markets.
Clements, A., Scott, A., & Silvennoinen, A. (2016). Modelling Intraday Correlations using
Multivariate GARCH. School of Economics & Finance: Queensland University of
Technology: Australia.[Online] Accessed from: https://acfr. aut. ac.
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February 2016].
Group, D. (2018). Our businesses. Wesfarmers.com.au. Retrieved 15 April 2018, from
http://www.wesfarmers.com.au/our-businesses/our-businesses
Hartwell, R. M. (2017). The industrial revolution and economic growth (Vol. 4). Taylor &
Francis.

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Hatfield-Dodds, S., Schandl, H., Adams, P. D., Baynes, T. M., Brinsmead, T. S., Bryan, B. A., ...
& McCallum, R. (2015). Australia is ‘free to choose’economic growth and falling
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https://orreconomics.weebly.com/market-structure-why-an-oligopoly.html
Myatt, D. P., & Wallace, C. (2018). Information Use and Acquisition in Price‐Setting
Oligopolies. The Economic Journal, 128(609), 845-886.
Pridgen, D. (2018). The Dynamic Duo of Consumer Protection: State and Private Enforcement
of Unfair and Deceptive Trade Practices Laws.
Wang, S. (2017). Corporate Retailing. The International Encyclopedia of Geography.
Whisenant, S., & Willenborg, M. (2016). Price Competition Within the Large Audit Firm
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