We are told that monopolies are rapidly dominating individual
markets and the latest news today seems to confirm this, but what actually are
they? A monopoly is characterized by an absence of competition, which often
results in higher prices and inferior products and whilst companies such as
Dutch Shell and Tesco don’t enjoy a full market share they have enough to have
a strong enough influence so that a rise in variable forces will lead to an
upwards shift in short run average cost and marginal cost (as shown below in
the diagram).
Example 1
Tesco much criticized by economists (Andrew Simms is particularly
scathing in ‘Tescopoly’) and consumers alike for their 30.7% share in the
grocery market is once again in the news for its latest venture. Since Monday
the supermarket has been selling home loans that aren’t exactly good value. At
3.89% Tesco’s five year fix at 3.89% is 0.5% worse than the market leader, a
considerable difference. However, despite this the loans are expected to be a
hit as club card users will see a private benefit. That benefit equates to one
point for every £4 on their monthly mortgage repayments, which can be spent in
store. Thus meaning any ‘saving’ goes straight back into Tesco’s pockets.
Market dominance at its most evident.
Example 2
The office of fair trade today launched an enquiry into
rising fuel prices. With many people unable to afford to drive the main focus
of the enquiry will be on the market dominance of the six main fuel suppliers.
A call could therefore, be made for more transparency in fuel prices and with
the average price of diesel and petrol being 143.52p and 138.99p a litre
respectively there is certainly reason for concern there. Whilst, fuel prices were
expected to rise due to ‘peak oil’ being reached by 2020, many believe the rise
is excessive and as such is a perfect example of a monopolistic market.
Market monopolies are growing all too frequent and are one
of the reasons for the death of the high street. Something must be done and
soon before we are buying everything from Tesco.
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