... says Ryan Bourne in City AM.
Well, no we haven't, but he makes a good point about one specific topic - that there is a difference between national and local market power/concentration:
Back in the 1950s, many UK villages and towns were served by a single grocer, butcher, and baker. These independent local stores would, in effect, be local monopolies, but had tiny share of the market for the whole country.
Today, major supermarket chains have gone from strength to strength, exploiting economies of scale and creating cost-effective distribution systems. Tesco, Sainsbury’s and others serve hundreds and thousands of locations, while engaging in cut-throat competition with each other.
As a result, at a national level the supermarket industry looks highly concentrated. The biggest four firms had 72.3 per cent of the market in 2016. But at a local level, many areas have seen huge increases in competition. They are now served by at least two supermarkets, as well as other stores, instead of the local monopolies of the past.
Or to put it another way, let's assume each town/area is served by two of the big supermarket chains. They are in competition and the consumer benefits. If the government were to force the big supermarket chains to close half their outlets, this would clearly reduce their national market share, but their remaining outlets would face less competition in all the towns/areas which are now only served by one large supermarket, and the consumer loses out.
Tuesday, 13 November 2018
"Trust me, we’ve been thinking about market power and competition all wrong"
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6 comments:
Of concern though is the monopoly power that nationally concentrated industries have - e.g. the terrible treatment of suppliers by Tesco et al. A great way to make money is say we'll pay you in 90 days and use the extra cash flow to boost profits. Then you can also turn the screws on a supplier if they are selling 40% of their stock to you - very hard to turn down a demand for a price cut. I believe Tyrell's crisps refused to sell to Tesco for this very reason.
Interestingly though, Aldi has stepped into the breach and their business model is based on paying suppliers much, much more quickly. As a result, suppliers have much more time for them.
M, the big supermarkets undeniably treat their suppliers like shit, but most of the savings are passed on to the consumer.
To give you an idea of the how much a local monopoly is worth to a supermarket, take the case of a small market town near where I live. It has one supermarket, a Co-op. A while back Aldi applied to build a store on an industrial estate on the edge of town. The planning officials were minded to refuse, but there was an outcry from the residents in favour of the Aldi store, as they were fed up with being gouged by the Co-op - its prices are far above Aldi/Lidl prices, and the service is poor - they're often out of all sorts of items. The nearest competing store is a 20 min bus ride away, so people without cars are stuck. As a result the councillors actually overturned the recommended refusal and allowed the store to go ahead, because of the public support (a large petition was got up and many people went to the planning meeting to make their views felt). Everyone celebrated. Except the co-op who a few months later announced they were going to challenge the decision in court, because of some procedural anomaly. Presumably working on the principle that the longer they can delay the building of a competing store the more money they'll make from their local monopoly. As far as I know thats where it stands today, grinding through the legal process.
S, that illustrates lots of things, thanks!
S, a similar thing happened in a market town where I lived a few years ago. It had one supermarket and there was a proposal by one of the bigger chains, I forget which, not the Coop, to build another one, in the centre of town. The Town Council, on which I sat at the time, was dead against it and the feeling was that the majority of the town retailers felt likewise. The local estate agent that was acting for the supermarket chain proposed to poll all the local retailers and, much to everyone's surprise, all but two were for the new supermarket. The feeling was that all the new supermarket would only be taking trade from the existing one and the ones in the nearby big town and that anything that brought more people into the town to shop would be a good thing. Nothing happened, the proposal died a death and I would not be at all surprised to learn that the existing supermarket had pulled some strings in the way you describe.
B, thanks, that illustrates the "remora" concept. As a small business, you can't really compete with the big chains in the things they do well - selling food and basic household items.
But if you are a cafe, a hairdresser, mobile phone repair shop, estate agent, something specialised or a service business, whose activities complement what the big chains do, you are quids in.
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