P6. Explore how the market structure and influences on supply and demand
affect the pricing and output decisions for a given business
In this assignment I am going to explore and explain the market structure and influences on
supply and demand affect the pricing and output decisions for my chosen business which is
Tesco.
TESCO
Tesco plc, trading as Tesco, is a British multinational groceries and general merchandise retailer
with headquarters in Welwyn Garden City, Hertfordshire, England, and United Kingdom. Tesco
is the largest grocery retailer with outlets across Europe, USA and Asia. In the UK Tesco now has
over 2,200 stores ranging from the large Extra hypermarket style stores to small Tesco Express
high street outlets.
MARKET STRUCTURE
Tesco could be described as an oligopoly market because it accords with three key
characteristics of an oligopolistic market. Firstly, there are only a few major competitors in the
market, so they control the supply in the industry e.g. Tesco is not the only supermarket in the
UK, Tesco is the dominant shareholder by 26.9%, Sainsbury which owns 14.9% of the UK
supermarket shares and ASDA which owns 13.9%. Secondly, firms should be interdependent,
because firms collaborate to charge the same price as each other which are in competition with
Tesco. Thirdly, there are barriers to entry to the industry, so they can prevent other firms from
taking advantage of the abnormal profits characteristic of oligopolies. This means the entry
barriers to entry are very high because the industry is dominated by small number of large firms
which control and own that share market.
INFLUENCES ON DEMAND
Availability of substitutes
Tesco offers its customers a wide range of products. It also sells substitutes of the majority of
the products. For example, it sells both butter and margarine. Likewise, it also sells fresh milk,
condensed milk, and powder milk. It is therefore easy to argue that the threat of substitute
products and services for Tesco is mostly irrelevant. There are very few substitutes available
for the products that are produced in the industry in which Tesco operates. This means that
there is no ceiling on the maximum profit that firms can earn in the industry in which Tesco
operates. All of these factors make the threat of substitute products a weaker force within the
industry. The very few substitutes available are of high quality but are way more expensive.
Comparatively, firms producing within the industry in which Tesco operates sell at a lower
price than substitutes, with adequate quality. This means that the threat of substitute
products is weak within the industry.
Consumer needs and aspirations
Customer-focused product development. Tesco intuitively understands what products its
customers will value. Tesco could spotlight its champion products better in-store - the new
smaller ranges will help - but those champion products exist, and across many categories.
Second, customer-focused ranging. Tesco take ranging for ethnicity and nationality in the
catchment and Tesco could understand how that audience varied by location. Third,
affect the pricing and output decisions for a given business
In this assignment I am going to explore and explain the market structure and influences on
supply and demand affect the pricing and output decisions for my chosen business which is
Tesco.
TESCO
Tesco plc, trading as Tesco, is a British multinational groceries and general merchandise retailer
with headquarters in Welwyn Garden City, Hertfordshire, England, and United Kingdom. Tesco
is the largest grocery retailer with outlets across Europe, USA and Asia. In the UK Tesco now has
over 2,200 stores ranging from the large Extra hypermarket style stores to small Tesco Express
high street outlets.
MARKET STRUCTURE
Tesco could be described as an oligopoly market because it accords with three key
characteristics of an oligopolistic market. Firstly, there are only a few major competitors in the
market, so they control the supply in the industry e.g. Tesco is not the only supermarket in the
UK, Tesco is the dominant shareholder by 26.9%, Sainsbury which owns 14.9% of the UK
supermarket shares and ASDA which owns 13.9%. Secondly, firms should be interdependent,
because firms collaborate to charge the same price as each other which are in competition with
Tesco. Thirdly, there are barriers to entry to the industry, so they can prevent other firms from
taking advantage of the abnormal profits characteristic of oligopolies. This means the entry
barriers to entry are very high because the industry is dominated by small number of large firms
which control and own that share market.
INFLUENCES ON DEMAND
Availability of substitutes
Tesco offers its customers a wide range of products. It also sells substitutes of the majority of
the products. For example, it sells both butter and margarine. Likewise, it also sells fresh milk,
condensed milk, and powder milk. It is therefore easy to argue that the threat of substitute
products and services for Tesco is mostly irrelevant. There are very few substitutes available
for the products that are produced in the industry in which Tesco operates. This means that
there is no ceiling on the maximum profit that firms can earn in the industry in which Tesco
operates. All of these factors make the threat of substitute products a weaker force within the
industry. The very few substitutes available are of high quality but are way more expensive.
Comparatively, firms producing within the industry in which Tesco operates sell at a lower
price than substitutes, with adequate quality. This means that the threat of substitute
products is weak within the industry.
Consumer needs and aspirations
Customer-focused product development. Tesco intuitively understands what products its
customers will value. Tesco could spotlight its champion products better in-store - the new
smaller ranges will help - but those champion products exist, and across many categories.
Second, customer-focused ranging. Tesco take ranging for ethnicity and nationality in the
catchment and Tesco could understand how that audience varied by location. Third,
