Market Structures: Tesco

This task for Business environs is split in two subroutines. For pull up stakes 1 I will be describing the 4 different mart structures that economist usu whole(a)y talk about argon perfect ambition, monopolistic rival, oligopoly and monopoly. utilise the 4 food market structures I will illustrate using real life case studies and good examples how a selected commerce of my choice has be losed/responded to its market structure and eventually describe how the frequently and other(a) regulatory bodies check against anti competitive behaviours.In the second part of the assignment I will describe the place of international and EU markets to UK firms. My description will include an evaluation of the pros and cons of UK joining the Euro along with that I will describe the impact of 2 EU policies on UK businesses. The business that I slang chosen for this assignment is Tesco this is beca procedure Tesco is a multibillion pound international business.Different types of market st ructuresMarket structures ar the business orientated characteristics of a market all businesses must focus on these characteristics of the market because these have an effect on the degree of competition in the industry and influence the business product or service pricing closes.Perfect competitionIn a perfect competition thither are few meekness and release barriers, in this type of competition the companies target the mass audience and they differentiate their product with minor changes in the product attributes (Homogenous).Homogenous products are i peterical products or business e.g. aviation all airlines prove one service which is to get their customers from one location to their destination and most customers have no preference or specific type of airline that they want to travel with, most customers will just look for the cheapest airline.In such type of competition most of the companies use Push strategy, i.e. huge efforts will be done through their sales team, the mai n focus is the product availability. In this type of competition the companies are pressure to follow the competitive pricing strategy in severalize to survive in the industry, i.e. the buyers have the power to influence the price of the product or services.Examples of a perfect competition to its closest definition are in the financial market like stock exchange, notes exchange market and the bonds/certificates market. As the companies are bound to follow market prices the only way the company shadower have advantage all over its competitors is by reducing its operating costs and workings at optimum level of efficiency.Monopolistic competitionUnder monopolistic competition, the market consists of galore(postnominal) buyers and sellers who stack over a range of prices earlier than a single market price. A range of prices occurs because sellers foundation differentiate their offers to buyers. Either the physical products feces be varied in lineament, features, style or th e accompanying services can be varied. Buyers chink different in sellers, products and will pay different prices for them. Sellers try to develop differentiate offers for different customer segments and, in addition to price, freely use branding advertising and personal selling to set their offers apart.In this sort of environment the businesses and trades people have moderately support over their prices because of the products differentiations. Most common examples of monopolistic competitions are restaurants as in the right area and right type of food they can have their own miserable portion of monopoly, professional solicitors, building and project managing firms and finally plumbers as there are less of them and more than required.OligopolyIn this type of competition the industry has a small numbers of large dominant firms that have a firm direct over the market. In oligopoly there are many entry and exit barriers such as huge investments etc. In this type of industry fir ms usually follows pull strategy and make huge efforts in marketing and advertising to attract its target customers, the products in the industry could be highly differentiated or even be similar but unstated of getting a hold and this is why businesses use branding or homogenous.Due to the low degree of competition theses big giants can ensconce on their own price which is most suitable for its target audience and these prices will be non-competition prices however there could be voltage for collusion and price altering so that to to each one one dominant business can enjoy their market share and have profits accordingly i.e. their profits margin will depart but still always high.Example of oligopolistic business industries are supermarkets such as Tesco which alone owns 30.4% which is nearly 1/3 of the UK supermarket retail share market share, banking industry, chemicals industry, oil and energy industry, medical drugs and likewise the juveniles and media broadcasting in dustry. http//www.retail-week.com/data/kantar- institutionpanel/tesco-market-share-up-as-it-piles-pressure-on-asda/5010942.article (Tesco market share)MonopolyA monopoly has high barriers to entry and firms have blind drunk chastens over their prices and they also control the supply of their product which can increase study of popular products, because a firm with a monopoly has majority of the market share it can decide to have low prices in order to destroy their competitors.A good and most current example of a monopoly is the Apple Company which has created the iPhone, because of the degree of the monopoly there is a high possibility of price discrimination where the customers and the consumers have their choices hold to what is available in the market.There are three different types of monopolies listed as on a lower floorPure monopoly in where the firm is the industry, for example Transport for London, the firm which owns all buses and underground tubes in and around London , this is where consumers have no or very(prenominal) limited choice.Actual monopoly is where the firm has somewhat majority of the market share in the industry, in this case Tesco is the most famous example, Tesco owns over 30.4% of the market share and is the loss leader in supermarket industry.Natural monopoly is where there are high fixed costs for example the energy industry like gas and electricity as substantially as water, telecommunications and the transportation industry like underground and rail.The disadvantages of a monopoly is that customer are exploited to high prices and potential supplies have limited choice for demand and this means that the consumers have less choice and again might have to pay higher prices than normal or the monopoly can even use very low price to push their competitors towards administration or bankruptcy.(http//66.102.9.132/search?q=cacheqGV5KxXiB80Jwww.bized.co.uk/educators/16-19/ frugals/firms/presentation/structure.ppt+market+structures& cd=2&hl=en&ct=clnk&gl=uk)What is Tescos market structure?Tescos market structure described by the media is believed to be a monopoly, Tesco has also been through the legal proceedings to prove their innocence, Tesco has accused of creation manipulative and gaining monopoly by building stores across towns and cities through the country and atomic number 63 but realistically Tesco is an oligopoly, although Tesco is the dominant supermarket it has fairly large competitors who also partly control the market.Tesco accused of Manipulative Monopoly (http//www.thisislondon.co.uk/standard/article-23658062-tesco-accused-of-manipulative-monopoly.do)A competition test to curb the power of the supermarkets was unveiled by the Competition Commission last family as part of a planning shake-up designed to boost competition in the multi-billion pound grocery market.But the tribunal agreed with Tesco that the commission did not to the full take account of the fact that the test, relating to planni ng decisions for larger stores, might have adverse effects for consumers, among other matters. (http//www.thisislondon.co.uk/standard/article-23658062-tesco-accused-of-manipulative-monopoly.do)How has Tesco responded to this structure?Monopoly Vs OligopolyTesco has over 4,000 stores across the world and out of those 4,000 Tesco has more than half of them in the UK around 2362 stores and this does not include all the Tesco metro and express stores. (http//www.tescoplc.com/plc/about_us/map/)Tesco themselves say that it is an oligopoly, this is because Tesco is not the only supermarket in the UK, Tesco is the dominant shareholder but cannot be called a monopoly as there are many other firms which are in competition with Tesco e.g. Sainsbury which owns 16.3% of the UK supermarket shares and Morrisons which owns 11.5%, this means the entry barriers to entry are very high because the industry is dominated by small number of large firms which control and own that share market.OFT (Office o f plumb Trading)The Office of Fair Trading is the UKs consumer and competition authority and their mission is to make markets work well for consumers. OFT is a non-ministerial establishment regulator that was established by government in 1973.Another organisation that does similar commerce to what Office of Fair Trading do, Ofcom is an independent regulator and competition authority, for the UK communications industries, with responsibilities across television, radio, telecommunications and wireless communications services. Competition regulators are important in business and are required to ensure equality and a fair deal for all,How does OFT checks anti-competition?OFT plays a lead role in promoting and protecting consumer interests throughout the UK, while ensuring that businesses are fair and competitive. This work is done using the powers granted to the OFT under consumer and competition legislation.OFT gathers intelligence about markets and trader behaviour from a replete(p ) range of sources and then they respond to complaints about markets from nominated consumer bodies, where the OFT is able to see potential problems, the OFT undertakes market studies and recommends to take action respectively.In a repenny investigation by the OFT has reviled that British Airways has been found guilty over the price of long-haul passenger fuel surcharges and has paid a penalty of 121.5m to be imposed by the OFT, therefore enabling the OFT to close its civil investigation and resolve this case. This penalty to the British Airways has been the highest ever imposed by the OFT for violation of competition law and this demonstrates the determination of the OFT to deal materially with anti-competitive behaviour.In another case, The Royal Bank of Scotland or RBS has also paid a fine of 28.59 million about 2 months ago in March 2010, after(prenominal) admitting breaches of competition law between October 2007 and February or March 2008, the fine for the bank was shortend from 33.6 million to 28.59 million and this was done to reflect RBSs admission and agreement to co-operate.The OFT has a 5 step method of watching a good eye on business and other organisations these 5 steps start with Analysis, Prioritisation, Prevention, league and Evaluation, the details of all the steps are on their website under What we do. (http//www.oft.gov.uk/ about/what/named2)How do other supervising bodies monitor anti-competition?As the OFT only supervises what happens in the linked Kingdom, there is the European compass north which is active in a colossal range of policy areas, from human rights to transport and trade, the European Union monitors all of the 27 countries that are part of the Federal, using similar techniques as the OFT but on a much larger scale, the policy to monitor and control competition is said as A fair deal for all and this policy is described asEffective competition to provide goods and services cuts prices, raises quality and expands cust omer choice. Competition allows technological innovation to flourish. The European Commission has wide powers to make sure businesses and governments stick to EU rules on fair competition. But in applying these rules, it can take account of the interests of innovation, unified standards, or small business development.(http//europa.eu/pol/comp/index_en.htm)United Kingdom supermarket shareFollowing are the 4 leading supermarket chains in the United Kingdom Tesco, Asda, Sainsburys and Morrisons, these fantastic four have a combined share of 75.6 perpenny of the UK grocery market accord to the research done in the 12 weeks ending 1 November 2009 (Source Kantar World pane) http//TNS_WorldpanelWhat is European Union?(http//europa.eu/abc/panorama/index_en.htm)European Union is a unique economic and political society which is in partnership between 27 democratic European countries.What are its aims?Some of the basic aims of the European Union are peace, successfulness and granting immunit y for its 498 million citizens in a fairer, safer world.What results so far?Under the European Union the members can travel and trade freely without any constraints as long as the members are trading in euro (the single European currency).European Union policies ensure safer food and a greener environment, better living standards in poorer regions, joint action on crime and terror, cheaper telecoms and communication, millions of opportunities to study abroad and moreHow does it work?To make these things happen, EU countries have set up bodies to run the European Union and adopt its legislation. The main ones are* The European Parliament (representing the people of Europe)* The Council of the European Union (representing national governments)* The European Commission (representing the common EU interest).How can the members have their say?The European Union is not a perfect society but it is an evolving project and constantly has to be improved. If a community or even an individual h as an important point to show to the union they must do some of the following starting with* Contacting their local MP European Union policies are part of national politics.* Contacting their MEP and cast vote at the European Parliament elections the European Parliament enacts EU laws (www.europarl.europa.eu)* Contacting their NGOs (consumer associations, environmental pressure groups, etc.) they work with the EU on shaping policies.The EU has developed a single market system of laws which apply to all member states, and ensures the free movement of people, goods, services, and capital, including the elimination of passport controls by the Schengen Agreement between 26 European Union states which I have listed below. European Union executes legislations in justice and home affairs, and maintains common policies on trade, agriculture, fisheries and regional development.Austria, Belgium, Czech, Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Italy, La tvia, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden and Switzerland. (http//www.axa-schengen.com/en/schengen-countries)Value of International markets to UKNon EU Exports* In June 2010 the summate entertain of UKs trade-in-goods exported to countries outside the EU was 10.9 billion.* As a comparison the total judge of UKs trade-in-goods exported to countries outside the EU in May 2010 was 9.4 billion and for June 2009 was 8.2 billion.* June 2010 showed a 15.5 per cent increase in exports compared to May 2010 and a 33.0 per cent increase in exports compared to June 2009.* The total 2010 year to involvement value of UKs trade-in-goods exported excluding June 2010 was 45.5 billion, which has been downwardly revised by 6.9 million.* The final total value of UKs trade-in-goods exported for January 2009 to December 2009 was 101.5 billion.Non EU Imports* In June 2010 the total value of trade-in-goods import to the UK from countrie s outside the EU was 15.4 billion.* As a comparison the total value of UKs trade-in-goods merchandise to the UK from countries outside the EU in May 2010 was 14.0 billion and for June 2009 was 12.0 billion.* June 2010 showed a 9.6 per cent increase in imports compared to May 2010 and a 28.4 per cent increase compared to June 2009.* The total 2010 year to date value of UKs trade-in-goods imported excluding June 2010 was 67.5 billion.* The final total value of UKs trade-in-goods imported for January 2009 to December 2009 remains at 147.3 billion.(https//www.uktradeinfo.com/index.cfm?task=noneufullreport)It can be concluded that UK has less exports to the non EU order compared to the European market, in June 2010 total value of goods exported to Europe was 11.3Billion compared to the total value of goods exported to the international market which was 10.9Billion.International business traffic is an important feature of the UK parsimoniousnesss survival almost 50% of UKs export is in the Non European Union zone, there fore international market has a vital role to play in UKs economy.The imports of UK data shows that the import from the non European Union zone is increasing i.e. from 14.0 billion to 15.4 billion, hence the UK economy is dependent on the import of essential raw and prepared materials today the service sector is more and more important to the UK economy as a result of the weakening of the manufacturing sector now imports are crucial and that is why using the international market the UK economy is on the growth as the export data depicts that UKs export is increasing from 8.2 billion to 10.9 billion.Value of European markets to UKEU Exports* In May 2010 the total value of UKs trade-in-goods exported to Member States of the EU was 11.3 billion.* As a comparison the total value of UKs trade-in-goods exported to Member States of the EU in April 2010 was 11.6 billion and for May 2009 was 9.3 billion.* May 2010 showed a 2.9 per cent decrease in exports compared to April 2010 and a 21.3 per cent increase in exports compared to May 2009.* The total value of UKs trade-in-goods exported for January 2009 to December 2009 was 124.2 billion, which has been upwardly revised by 48.5 million.* The total 2010 year to date value of UKs trade-in-goods exported excluding May was 46.2 billion, which has been upwardly revised by 273.6 million.EU Imports* In May 2010 the total value of trade-in-goods imported to the UK from Member States of the EU was 14.7 billion.* As a comparison the total value of UKs trade-in-goods imported to the UK from Member States of the EU in April 2010 was 15.3 billion and for May 2009 was 12.2 billion.* May 2010 showed a 4.2 per cent decrease in imports compared to April 2010 and a 20.8 per cent increase in imports compared to May 2009.* The total value of UKs trade-in-goods imported for January 2009 to December 2009 was 162.7 billion, which has been upwardly revised by 238.0 million.* The total 2010 year to date value of UKs trade-in-goods imported excluding May was 59.2 billion, which has been upwardly revised by 96.7 million. (https//www.uktradeinfo.com/index.cfm?task=euearlypub)The single market benefits the firms, by making it easier & cheaper to do business in other EU countries. No customs tax is charged on goods that are sold or transported between member states. The EU also tries to make each market as similar as possible to ensure fair competition across national borders.Free Movement of CitizensEuropean citizens have the freedom to live, work, study, and travel in any other EU country. Since 1995 alone, about 100,000 young Britons have spent time studying in another European country. more(prenominal) JobsIt is estimated the 3.5 million British jobs are dependent on* Britains membership of the EU. (Source UK Jobs Dependent)UK joining the Euro (Pros & Cons)Below I have listed the advantages and disadvantages which were discussed by the chancellor Gordon Brown at the propagation of betwe en 1999 and the year 2002 when the waves of countries in Europe joined the European Union and the currencyAdvantages1. A single currency should end currency imbalance in the participating countries (by irrevocably fixing exchange rates) and reduce it outside them. Because the Euro would have the enhanced credibility of being used in a large currency zone, it would be more stable against speculation than individual currencies are now. An end to internal currency instability and a reduction of external currency instability would enable exporters to project future markets with greater certainty. This will unleash a greater potential for growth.2. Consumers would not have to change money when travelling and would figure less red tape when transferring large sums of money across borders. It was estimated that a traveller visiting all twelve member states of the (then) EC would lose 40% of the value of his money in transaction charges alone. Once in a lifetime a family might make one la rge purchase or transaction across a European border such as buying a holiday home or a piece of furniture. A single currency would help that transaction pass smoothly.3. Likewise, businesses would no longer have to pay hedging costs which they do today in order to insure themselves against the threat of currency fluctuations. Businesses, involved in commercial minutes in different member states, would no longer have to face administrative costs of accounting for the changes of currencies, plus the time involved. It is estimated that the currency cost of exports to small companies is 10 times the cost to the multi-nationals, who offset sales against purchases and can command the scoop up rates.4. A single currency should result in lower interest rates as all European countries would be locking into German pecuniary credibility. The stability pact (the main points of which were agreed at the Dublin summit of European heads of state or government in December 1996) will stuff EU cou ntries into a system of financial responsibility which will enhance the Euros international credibility. This should lead to more investment, more jobs and lower mortgages.Disadvantages1. Twenty seven sort out countries with widely differing economic performances and different languages have never before exertioned to form a monetary union. It works in the United States because the repel market is mobile, helped by the common language and portability of pensions etc. across a large geographical area. Language in Europe is a huge barrier to labour force mobility. This may lead to pockets of deeply depressed areas in which people cannot find work and areas where the economy flourishes and wages increase. While the cohesion funds attempt to address this, there are still great differences across the EU in economic performance.2. If governments were obliged through a stability pact to keep to the Maastricht criteria for perpetuity, no matter what their individual economic circumstanc es dictate, some countries may find that they are unable to combat recession by loosening their fiscal stance. They would be unable to devalue to boost exports, to borrow more to boost job creation or cut taxes when they see fit because of the public dearth criterion. In the United States, Texas could not avoid a recession in the wake of the 1986 oil price fall, whereas demand for Sterling changed in the light of the new oil price, adjusting the exchange rate downwards.3. All the EU countries have different cycles or are at different stages in their cycles. The UK is growing reasonably well, Germany is having problems. This is the turn back of the position in 1990. Since the war the UK economy has tended to have an economic cycle closer to the US than the EU. It has changed because interest rates are set in each country at the appropriate level for it. One central bank cannot set inflation at the appropriate level for each member state.4. firing of national sovereignty is the mos t ofttimes mentioned disadvantage of monetary union. The transfer of money and fiscal competencies from national to community level would mean economically strong and stable countries would have to co-operate in the field of economic policy with other, weaker, countries, which are more tolerant to higher inflation.(http//news.bbc.co.uk/1/hi/special_report/single_currency/25081.stm)One of the few reasons that the United Kingdom did not want to join the single European currency with the first wave of countries on 1 January 1999 is that according to the chancellor of the Exchequer at that time in 1999 who was Gordon Brown our current prime minister said that, although the government supported the principle of the single currency Britain would not be fast to join at least until the second wave of countries which occurred in 2002 and during that time he told the European Union that the country should begin to prepare for monetary union but up till now there have been no indications of t he United Kingdom joining the European Union currency, Euros.From my understanding there are many possible reasons that the government should consider while joining Euro, joining Euro would reduced exchange rate uncertainty for UK businesses and lower exchange rate transactions costs for both businesses and tourists. Eliminating exchange rates between European countries eliminates the risks of unforeseen exchange rate revaluations or devaluation, provided those businesses who involved in commercial transactions in different member states would no longer have to face administrative costs of accounting for the changes of currencies. The loss of national sovereignty is the most often mentioned reason for the UK not joining the monetary union is the transfer of money and financial proficiency from national to community level would mean that economically strong and stable countries would have to co-operate in the field of economic policy with other weaker countries.European policiesThe European Union is currently active in a wide variety of policies from human rights to transport and trade below is the list of some of the policy areas of the European Union.Agriculture Media Competition Consumers EducationEmployment Environment External trade Fight against fraud Human rightsTaxation Transport Justice, freedom Internal market Customs(http//europa.eu/pol/index_en.htm)Impact of European Unions Competition policy on TescoCompetition policyA fair deal for allEffective competition provides goods and services cuts prices, raises quality and expands customer choice, allows technological innovation. The European Commission has wide powers to make sure businesses and governments stick to EU rules on fair competition.Competition must be fairIt is illegal under EU rules for businesses to fix prices or carve up markets between them. A multinational company like Tesco cannot merge with another giant if that would put them in a position to control the market, though practice thi s rule only prevents a small numbers of mergers going ahead.If Tesco plans to merge with its competitor, Tesco needs approval from the European Commission, the EUC (European Union Commission) marks their decision depending on the amount of business that Tesco has within the European boundaries.The Commission may agree to a company having a monopoly in special circumstances for example where costly infrastructure is involved (natural monopolies) or where it is important to guarantee a public service.The large may not exploit the smallIn doing business with smaller firms, Tesco cannot use their bargaining power to impose conditions which would make it difficult for their supplier or customer to do business with its competitors. The Commission can, does and has fined companies for all these practices.No props for lame ducksThe Commission also monitors closely how much assistance EU governments make available to business (state aid). This aid can take many forms loans and grants, tax breaks, goods and services provided at preferential rates, or government guarantees which enhance the credit rating of a company compared to its competitors but in this case this does not apply to Tesco till today as Tesco is already on top of its game.Exceptions that prove the ruleSome exceptions to the general rules are possible. The European Union Commission can allow companies like Asda and Morisons to cooperate in developing a single technical standard for the market as a whole. It can allow smaller companies to cooperate if this strengthens their ability to compete with larger ones such as Sainsburys and Tesco.Aid for research and innovation, regional development or small and medium-sized enterprises is often allowable because these serve overall EU goals.Checks and balancesThe Commissions extensive powers to investigate and halt violations of European Union competition rules are subject to legal check into by the European Court of Justice. Businesses regularly have to make a ppeals against Commission decisions if it seems like a unfair deal.The competition policy stops the Tesco from growing further from their potential market share, something which Tesco has known to be done in the recent years. Effective competition provides goods and services, automatically raises quality and customer choices increase with competition. The policy also allows technological innovation and the European Commission makes sure that these innovations are in the European Unions fair competition policy.EnvironmentThe European Union has some of the highest environment standards in the world, developed over decades to address a wide range of issues. Today the main priorities are combating climate change, preserving biodiversity, and reducing health problems from pollution and crisscross sure that natural resources are being used more responsibly.Climate changeClimate change is one of the gravest challenges facing humanity. The European Union plans to reduce babys room gases a t least 20% by 2020 (compared with 1990 levels), raise in renewable energys share of the market to 20% and cut overall energy inlet by 20% (compared with projected trends).All businesses like Tescos are directly bear on by this policy as this aims to cut energy consumption and greenhouse gasses by 20%, meaning Tesco will have to recycle more, reuse materials more and reduce wastage and use of non-biodegradable equipment which will have a small dent on their profit.Emissions tradingEuropean Unions rewards businesses and organisations, which reduce their CO2 emissions and penalises those that exceed limits. Introduced in 2005, the scheme takes in about 12,000 factories and plants responsible for about half the EUs emissions of CO2.Under the system, European Union governments set limits on the amount of vitamin C dioxide emitted by energy-intensive industries and if they want to emit more CO2 than their quota, they have to buy spare permits but most supermarkets stores do not manufa cture and this means that they will have to use eco friendly methods of business and equipment. Tesco has already proven that they are committed towards being eco-friendly, Tesco Plc, the worlds No.4 retailer, plans to cast over 100 million pounds with British green technology companies over the coming year as it steps up its drive to halve carbon emissions by 2020.(http//uk.reuters.com/article/idUKTRE61203720100203)Environmental healthNoise, swimming water, rare species and emergency response -these are just some of the areas covered under the extensive organic structure of environmental legislation that the EU has established over the decades.EU has set binding limits on emissions of fine particles known as PM2.5. Released by cars and trucks, these microscopic particles can cause respiratory diseases. Under the new law, EU countries will have to reduce exposure to fine particles in urban areas by an average 20% by 2020. In 2007 Tesco received the Top online green award for their zero-emission delivery vans.Sustainable developmentSustainable development has long been one of the overarching objectives of EU policy. EU leaders launched the first EU sustainable development strategy in 2001 and updated it in 2006 to tackle shortcomings and take account of new challenges. Since then there have been significant efforts in terms of policy. Now the focus is on putting policy into practice in to UKs market.As Tesco manly sells general groceries they are affected by the European Unions environment policy, in a way that it has to source materials from the suppliers who obey and follow the European Unions environment policy, this means that Tesco has limited span of potential suppliers.