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6 (a) 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
Question 6
6 (a) 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 ... show full transcript
Worked Solution & Example Answer:6 (a) 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
Step 1
Explain one likely reason for the change in the four-firm concentration ratio of the supermarket sector between 2010 and 2015.
Answer
One likely reason for the change in the four-firm concentration ratio is the increased market share of the leading supermarkets, particularly Tesco, Sainsbury’s, and Morrison’s, as shown in Figure 1. The data indicates that these supermarkets have consolidated their positions, which is a result of aggressive pricing strategies and mergers. As prices drop due to competitive pressures, it can lead to a higher concentration of market share among fewer firms, driving smaller competitors out, ultimately increasing the concentration ratio.
Step 2
Discuss the possible impact of supermarket monopoly power on both food suppliers and consumers.
Answer
The supermarket monopoly power can significantly impact food suppliers by leading to unfavorable contract terms and price pressures. Suppliers may find themselves with less bargaining power, resulting in lower profit margins and potential operational difficulties. For consumers, a monopoly can result in higher prices in the long term if competition decreases. Although initially, competition may lower prices, a lack of alternatives could restrict choice and lead to reduced quality of products.
Step 3
Examine measures the government might use to restrict the monopoly power of supermarkets.
Answer
To restrict the monopoly power of supermarkets, the government could implement regulatory measures such as enforcing competition laws that prevent anti-competitive practices. This may include scrutiny of mergers and acquisitions that lead to excessive concentration. Additionally, promoting smaller local suppliers and establishing fair trading practices can ensure more players in the market, enhancing competition and consumer choice.
Step 4
Assess the extent to which ‘information gaps’ (Extract B, lines 5 and 6) and ‘rational behaviour’ (Extract B, line 11) are the main issues in the supermarket sector.
Answer
Information gaps significantly contribute to inefficiencies in the supermarket sector, as consumers may not be aware of the true value of products or pricing strategies, which can lead to waste. In terms of rational behavior, it refers to consumers making decisions based on available information. However, if the information is incomplete or misleading, it can hinder rational decision-making. Both factors are crucial, but the impact of information gaps may be more pronounced, as they can lead to a disconnect between supply chain effectiveness and consumer expectations.