With reference to Figure 1 and Extract A, explain one likely reason for the change in the four-firm concentration ratio of the supermarket sector between 2010 and 2015 - Edexcel - A-Level Economics A - Question 6 - 2017 - Paper 1

Supermarket monopoly power can significantly affect food suppliers and consumers in various ways:

1. Impact on Food Suppliers:

   • Reduced Negotiating Power: Supermarkets with monopoly power can dictate terms to suppliers, leading to lower prices for suppliers, which may threaten their profitability.
   • Increased Pressure: Suppliers may face pressure to comply with low pricing, causing them to cut costs potentially affecting the quality of products.

2. Impact on Consumers:

   • Higher Prices: In a monopoly scenario, prices may rise due to lack of competition, leading to less choice for consumers.
   • Limited Choices: Consumers may face fewer options for purchasing food as smaller suppliers may be driven out of the market.

To restrict the monopoly power of supermarkets, the government could consider several measures:

1. Regulatory Oversight: Implementing stricter regulations on mergers and acquisitions in the supermarket sector to prevent the creation of monopolies.
2. Encouraging Competition: Providing incentives for smaller retailers to enter the market could enhance competition and improve consumer choice.
3. Price Capping: The government might enforce price caps on essential goods to protect consumers from excessive pricing.

‘Information gaps’ can lead to consumers making decisions based on incomplete information, which can hinder their ability to shop wisely. For example, consumers may not be aware of cheaper alternatives available from smaller suppliers. On the other hand, ‘irrational behaviour’ refers to behaviours that do not align with logical economic decision-making, such as brand loyalty or impulse purchases.

• Extent of Information Gaps: Information gaps can prevent consumers and suppliers from making informed choices, but they can often be mitigated by better marketing strategies and consumer education.
• Extent of Irrational Behaviour: Irrational behaviour can stem from emotional or psychological factors affecting purchasing decisions, which can be more persistent than information gaps.

The suggested merger between Sainsbury’s and Morrisons could present several potential problems:

1. Regulatory Scrutiny: The merger is likely to attract close scrutiny from regulatory bodies due to concerns about increased monopoly power and reduced competition.
2. Cultural Integration: Integrating differing corporate cultures can be challenging and may lead to internal conflicts.
3. Public Perception: There could be adverse public reactions against a merger that threatens competition in local markets, leading to loss of customer trust.

In summary, while the merger might offer operational synergies, the challenges associated with regulatory compliance and maintaining brand integrity will need to be carefully managed.