D2C07 Other Types Of Market Flashcards
Define other types of market compared with free market
Example?
Certain countries have adopted legal structures which limit the supply chain options available to producers and control the sale of wine to the end consumer
E.g., monopoly, USA three-tier system
Examples of countries with monopoly markets
Canada except Alberta. E.g., Liquor Control Board of Ontario (LCBO)
Sweden - Systembolaget is the only retail outlet allowed to sell alcohol; specialist independent distributors licensed under special conditions
Benefit of monopoly markets
Limit alcohol consumption through high tax and high pricing
Encourage responsible prices by removing incentive to compete
Staff advise customers based on their requirements
Final decision to stock is based on quality alone - chance for small producers
Once adopted, available throughout the country
Disadvantage of monopoly markets
Reduced sale because of high price
Very difficult to enter and considerable amount of bureaucracy to deal with
Which is prohibition
Between 1919 and 1933, , the Volstead Act prohibited the production, sale and consumption of alcohol in the USA, with the exception of wine used for religious purposes
The reason for introducing the three-tier system
To prevent a return to the pre-prohibition ‘saloon’ days of gambling, prostitution, crime and drunkenness
Many saloons were tied houses, required to buy all products from a particular brewer or distiller
3-tier system prevents direct sales from producer/supplier to the retailer to avoid producer monopolies and increase prices
What are the three tiers
Producer/importer
Distributor, including wholesalers, brokers
Off premises retailer / on premises retailer
What is the key rule of three-tier system
A producer cannot by-pass a wholesaler and sell direct to retailer
Producer can be importer but not wholesaler
Wholesaler can import but not produce
Benefit of the three-tier system
Distributors specialize in logistical efficiency and the largest of them service huge areas of country
Trained sales force and marketing material - potentially provide producer with exposure that would be extremely costly to gain otherwise
Disadvantage of three tier system
Complicated state-level laws to deal with
Higher price
Consolidation: distributor decreased by two thirds in the last 20yr (3000-1200), US wineries seeking to enter market increased by a factor of five (2000-9500)
Bottleneck works to the disadvantage of smaller producer: product lost in the massive portfolio of large distributors; reduced control over marketing and selling; direct sale to consumer but additional costs of labor, advertising, shipping, legal compliance
Why is there a trend for conglomerates throughout the supply chain in the US
Conglomerate can provide an array of products to a large distributor
Large distributor needs only to deal with one large company to gain a rain gear of desirable brands that need limited hand sellin
Multiple retailer provide a range of products whilst dealing only with one or two large distributors
