Saturday, January 2, 2010

Are Coles and Safeway competiting?

I am almost certain there is no real competition between these two grocery giants. Between them they control 80% of the Australian market. The reason is very simple. In a market-driven model, true supply and demand are constantly at work. Businesses are supposed to compete with one another and thereby keeping prices in check. When a business is able to arbitrarily increase its prices and still get away with it, market forces is no longer at work. It may appear that Coles and Safeway are competitors, but do they really compete? Towards the end of 2009 I could see that suddenly many items have a noticeably higher price tag. The local newspapers report that grocery prices in Australia is the second highest among the developed countries, yet Coles and Safeway can seemingly continue to increase prices at their whim and fancy without fear of losing out to any competitor. The reason they can do this is that a duopoly situation has emerged whereby Coles and Safeway have learned to co-exist, happily dividing up the market between just the two of them.

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