Discuss about the Dynamic Duo of Consumer Protection.
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 management.
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 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 management.
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.
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 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.
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 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.
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.
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)
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.
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 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.
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.
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 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.
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
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Campbell, J. (2017). Insights from the company monitor: Wesfarmers. Equity, 31(8), 16.
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Group, D. (2018). Our businesses. Wesfarmers.com.au. Retrieved 15 April 2018, from https://www.wesfarmers.com.au/our-businesses/our-businesses
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Pridgen, D. (2018). The Dynamic Duo of Consumer Protection: State and Private Enforcement of Unfair and Deceptive Trade Practices Laws.
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