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 impact food suppliers by reducing their profit margins and influencing the terms of trade. For instance, suppliers may face pressure to lower prices due to the bargaining power of large supermarkets, which can lead to financial strain on smaller suppliers. Additionally, the reliance on a few supermarkets can result in less market competition, further jeopardizing the sustainability of food suppliers.

For consumers, supermarket monopoly power can lead to higher prices in the long term if competition diminishes. While short-term price cuts may occur due to price wars, the lack of competition may mean fewer choices and reduced quality of products in the long run. Consumers may also experience diminished access to diverse food products as suppliers find it challenging to partner with monopolistic retailers.

The government may implement several measures to restrict the monopoly power of supermarkets, including:

1. Antitrust Laws: Enforcing antitrust legislation to prevent anti-competitive practices and promote fair competition in the supermarket sector.
2. Regulation of Mergers: Closely scrutinizing proposed mergers and acquisitions to prevent excessive concentration of market power.
3. Price Controls: Introducing price control mechanisms to curb the power of supermarkets to dictate prices and ensure affordable food access for all consumers.
4. Encouraging Local Markets: Supporting local food markets and independent retailers through subsidies and incentives, thereby enhancing competition.

‘Information gaps’ occur when consumers lack knowledge about product prices, quality, and the implications of their purchasing decisions. This can lead to poor choices, as consumers may overpay or select inferior products. Likewise, ‘irrational behaviour’ can result from emotional decision-making, such as impulse purchases, which can detract from rational economic choices.

While these issues significantly impact consumer behaviour, they may not be the only concerns. Factors such as availability of alternatives and price sensitivity also play crucial roles in consumer choice. Thus, while information gaps and irrational behaviour are significant issues, they are part of a broader context of consumer interactions in the marketplace.

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

1. Regulatory Hurdles: The merger would likely face scrutiny from the Competition and Markets Authority (CMA) due to concerns about reduced competition and increased monopoly power.
2. Integration Challenges: Merging operations could result in significant logistical and operational hurdles, complicating the integration of supply chains, workforce, and management structures.
3. Public Perception: The merger may garner negative publicity if consumers perceive it as a move that undermines competition, potentially leading to customer distrust and sales declines.
4. Market Reaction: Investors and analysts might react unfavorably if the merger is seen as risky, especially in a declining market, affecting stock prices and financial stability of both companies.