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4) The Market Structure in which Sainsbury’s Operate
All businesses fall in one of the three types of market structure, they are Perfect competition, Oligopolies and Monopolies.
Market Structure Spectrum
The two extremes of the above spectrum are Perfect competition and Monopolies. The reality is that neither of these actually exist in a pure form. Microsoft for example is not the only business in their market, although they have an overwhelming percentage of market share, a pure monopoly must have 100% of market share and be the only firm operating in that particular market. Perfect competition is the opposite many businesses selling exactly the same products, once again this is not the reality. There is always some sort of differentiation between businesses. These definitions are the extremes, most businesses fall between them. The third type of market structure is an Oligopoly, this is the structure that Sainsbury’s falls under. An Oligopoly is ‘A market with a small number of large players’ (D. Begg and D. Ward 2003). There is little doubt that the UK Supermarket falls under this market structure. The big three of the market are Tesco, Asda and Sainsbury’s. There are other smaller firms operating in the market, such as Iceland, Budgens and the growing Morrisons. However, the market is dictated by the big three and it is those who compete for the supernormal profits.
Each of the players in an Oligopoly have significant market share, unlike in perfect competition, where most firms market share is insignificant to the overall market. In most Oligopolies there is some sort of collusion between the firms, each act as a monopoly, this will ensure that a price war does not ...