Advantages and Disadvantages of a Duopolistic Market structure
A duopolistic market structure is a form of oligopoly in which two main companies dominate most of the market share of a particular product or a service. The impact on the market is quite similar to that of a monopoly.
In a duopolistic market structure the companies that have a duopoly reap the full benefits of controlling the price and output in the market. But this makes it very difficult other companies to enter the market or survive in the long run
In Australia the best example of a duopoly is perhaps Woolworths and Coles. Lets take the case of the Woolworths and Coles Duopoly to explain the advantages and disadvantages of a duopolistic market structure that exists in the Australian Market
Advantages of a Duopoly from a company viewpoint
Price Power- Woolworths and Coles collectively control about 80% of the country’s grocery market and they exploit their market share to the fullest. The supermarket power what these two retailers have achieved is mainly because of their ability to have a control on the pricing of the products they sell. Any consumer’s main concern is to get the best quality and maximum amount of quantity in the money that they spend on groceries. The home brand product that these supermarkets offer considerably cost less than the other brands, which they offer of the similar products. . Supplying the home band products that Coles and Woolies have been offering has been beneficial to the both in many ways. A lot of suppliers have been forced to cut down on their prices so as to match the price range of the home brand products. Most of the substitutes of the products from companies like Coca-cola, Heinz, Kwality walls, Nestle can be easily found.
The products of these kinds of suppliers are easily discriminated if these suppliers do not cut down their prices. . For example The milk Woolworth sells is for $1 a liter, which is a very affordable price for the consumers. Besides offering good discounts on groceries they also offer a discount on petrol and liquor. If any one buys groceries for AUD 200 they obtain discounts of 45 c a liter and 30 dollars 16 c a litre. . This has been quite helpful for them in retaining customer loyalty as well. Competition Control- This duopoly by Coles and Woolworths has kept the competition from other retailers at bay. Even though it’s a free market where any one can participate, but competing against the two supermarket giants of the country thwarts the survival of other retailers. The Australian competition and consumer case have tried hard to break this duopoly in this sector but the have had very limited success to do so. As they have captured at least 80% share in the market, the remaining 20%, which includes international retailers, like Aldi, Spar and some small local retailers like Foodwroks find it very hard to compete in the environment set by the duopoly.
Disadvantages of a duopoly from a company point of view
Criticism from The Australian Competition and Consumer Commission (ACCC)- The strong monopoly by both Woolworths and Coles has made it very difficult for other firms to enter and survive the market. Their duopoly has eliminated the ways of being a free market trade where all the suppliers can freely operate in a perfectly competitive market. The ACCC has taken strict measures to control their expansion and make it a fair trade for everyone equally. The ACCC’s main agenda is to ensure that the competition is fair; they do not support any individual suppliers. There have been allegations against Woolworths and Coles that they do not treat their suppliers properly. The suppliers are forced to accept the price set by Woolworths and Coles otherwise the sale of their products comes in jeopardy. Also Woolies and Coles give petrol shopper dockets for the amount of groceries purchased by a consumer. The ACCC claims that both Woolworths and Coles give at least $200 million a year of petro subsidies and because of these subsidies the price of petrol has also been going up. Reports have indicated that in some petrol pumps owned by both Woolworth and Coles the petrol subsidies went up to like 166.9c a litre..
The Chairman of ACCC Mr Rod Sims has issued a court notice against the petrol shopper dockets offered by Woolworths and Coles. The report by ACCC also indicates that this scheme will hurt may fuel retailers in the long run and will ruin the chance of a fair competition in the country. Even though the consumers are happy with this scheme but this will harm many retailers and there can also by a point of a duopoly in selling of petrol in the country by only two companies in the future. Supplier’s complaints- A large number of suppliers to Woolworths and Coles have expressed that they have a difficulty in working with them. The milk war between Woolworths and Coles, which resulted in the reducing the price of most of the other day to day, use utilities and food like bread, toilet paper and tea.. The $1 for a litre of milk might be in amazing scheme in attracting a large volume of customers but for the dairy farmers it might not be an amazing scheme as they might be concerned about their profit margins. Suppliers have also raised concerns about the price discrimination they have to face because of the home branded goods. Many suppliers have also stated they find it much easier and simple to work with International retailers like the German supermarket Aldi. . Many suppliers have silently raised concerns about their dealing with two Australian supermarket giants. They are silent because of fear of losing any future contracts. Reports have indicated that Aldi does not force the suppliers to cut down on their prices and pays them on time as well.
Advantages of a duopoly from a consumer’s point of view
Customer satisfaction- One of the biggest factors how Woolworths and Coles have maintained a strong and a dominant market share is that they have attracted a large volume of customers over the years and made sure that they happy happy and satisfied. Woolworths and Coles make sure that they offer the best prices for their products especially if the products are home branded. The schemes and various kinds of offers they have on their products attract the customers like anything. For instance Woolworth has now big family specials in which there is a cost reduction of at least 64 cents on dishwater tablets and various other items that are included in the package. By evening they reduce the price in most of their item like bacon, beef,
coke, bread and etc. The price of their home brand products is lower a compare to the products offered by other suppliers. Most of the consumers are happy with the quality of the home brand products. Another strong factor of their duopoly is their ability to be diverse besides only providing groceries. Besides giving good deal in groceries they also offer good subsidies on petrol and good deals on liquor as well. The petrol shopper dockets, which they provide on the amount of groceries, purchased gives customer another good reason to be their loyal customer. Even if a shopper docket is worth of 45 cents a litre gives a lot of benefits to a customer.. Every week there is discount on some liquor or the other. If the deals are so crazy then which customer won’t be happy Customer relationship, preference and convenience- with 80% share on the groceries market and also a 50% stake in selling of liquor and petrol the consumer will trust the brand very easily. A consumer can buy groceries, fill up fuel and buy liquor form the same place again and again upgrade their reward card on every purchase and use it for subsidizing in filling fuel. Also the customer has a wide variety of products available at any of the store from Woolworth and Coles. The customers trust the quality of the products blindly. The customer can also order groceries and liquor from their website very easily. If there is a relatively new retailer in town the customer will think twice before purchasing groceries from them. Although Woolworths and Coles stores are spread throughout the country, so the customer would prefer to go to the nearest Woolworth or Coles store. Woolworths and Coles have also maintained good relation with their customers and the customers given them their loyalty for their preference and satisfaction
Disadvantages of a duopoly from a consumer’s point of view Limited options available for a consumer- Since most of the grocery market is dominated by Woolworths and Coles, the other retailers find it very hard to enter and compete fairly in the market. the consumers are mostly restricted to Woolworths and Coles. Even though retailers like Aldi and Walmart are trying to expand their expansion is restricted to the 20% of the market share, which is not a lot. Even though the customers might get a good deal from both Woolworths and Coles, there is also a reason that the customers have limited diversity in the amount of retailers. Since Woolworth owns Dan
murphy’s and both Woolworth and Coles make their own house spirits and beer, they also have a significant share in the market in the sale of alcohol as well. So the consumers also buy mostly alcohol from most of the stores owed by the either two Bibliography
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