Is Retailing Becoming an Oligopoly?
In the changing 21st Century consumer products environment, major parts of retailing seem to be transforming themselves from a perfectly competitive environment to an oligopoly.
Here are some examples of this apparent metamorphasis:
- The emergence of the super retailers like Walmart, Costco and Target where a vast variety of food and more durable non-food products are being sold under one roof;
- The decline of the shopping centers and malls;
- The emergence of Amazon s the on-line retailing behemoth.
Certain retail industries such as groceries, cars, cellphones and airlines to name a few have always been oligopolies, but more and more additional retail product categories are leaving the world of pure competition, and entering the world of oligopoly.
Pure or perfect competition exists when there are lots of buyers, lots of sellers, lots of information with relatively small entry costs for competitors. In pure competition, the price of goods is determined by what the consumer wants to pay. Oligopoly is a market structure where a small number of firms have the large majority of the market. An oligopoly is similar to a monopoly except that rather than single firm, two or more firms overpower the market. The costs for competitors to enter an oligopoly are high and create a barrier to inclusion.
Many consumer products lend themselves to commodity pricing such as household and kitchen items, furniture, electronics, home office supplies, bedding, lawn and garden, automotive, tools, outdoor/patio and much more. Nearly every retail category is available from some oligopoly, or on Amazon—the on-line monopoly.
Perhaps the only category that can escape the emerging oligopoly is clothing, but much of that is available from either Amazon or other on-line providers.
Much of men’s clothing can be purchased from the online oligopoly, and virtual shopping has entered the women’s online arsenal. Virtual shopping enables a woman to provide key measurements and then observe exactly how clothes look as if tried on.
The consumer pricing of the oligopoly models vary. In the perfectly competitive environment, the costs of entry are low and the prime focus is satisfying the customer. The oligopoly has high costs of entry. Here the prime focus is competing with others in the oligopoly’s small group. Pricing in the oligopoly can go a number of ways:
- It can lead to commodity pricing where the players in the group all produce essentially the same product and price them similarly. This often leads to collusion and pricing fixing or cartels. In this model, the oligopoly players essentially form a monopoly.
- Another outcome could be differentiation. Here you get a leader who may employ premium pricing while others price behind the leader depending on the “bells and whistles” their products offer.
- Finally, there can be fierce competition between the oligopoly players, with the winner becoming a monopoly. This is what we saw in the days of the “trust” with John D. Rockefeller emerging as the king of oil with the Standard Oil trust.
Regardless, as retailing in various categories moves toward the oligopoly model, the customer should be aware of these changes and adapt so that they can find the best ways to satisfy needs. Only the future will allow us to know the implications of the movement from pure competition in retailing to oligopoly.