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
Benefits of monopoly markets to producers
> Staff advise customers based on their requirements, not promotions/incentives.
> Final decision to stock is based on quality alone - chance for small producers.
> Once adopted, available throughout the country
Disadvantages of monopoly markets to producers
> Potentially reduced sales because of high prices
> Very difficult to enter and considerable amount of bureaucracy to deal with
e.g. Systembolaget in Sweden, must become an approved supplier, then win a tender process, involving impressing a blind tasting panel, and chemical analysis that wine being sold is the same as wine tasted by the panel.
What was 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
What were the reasons 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 therefore prevents direct sales from producer/supplier to the retailer to avoid producer monopolies and increase prices, thereby reducing likelihood of drunkenness.
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 an importer but not a wholesaler
Wholesaler can import but not produce
Benefits of the three-tier system to producers
> Distributors specialise 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
Disadvantages of three tier system to producers
> Complicated state-level laws to deal with
> Higher prices potentially limits sales
> Consolidation: no. of distributors decreased by two thirds in the last 20yrs (3000 to 1200), while US wineries seeking to enter market increased by a factor of five (2000 to 9500)
> This 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 provides alternative, but additional costs of labor, advertising, shipping, legal compliance
Why is there a trend for companies becoming bigger, throughout the supply chain in the US?
> Conglomerate can provide an array of products to a large distributor including export markets
Large distributor needs only to deal with one large company to gain a rain gear of desirable brands that need limited hand selling
Multiple retailer provide a range of products whilst dealing only with one or two large distributors
What is the main aim of government adopting a monopoly model?
To limit alcohol consumption, through high-pricing.
By removing the incentive in a free market for store to compete with each other, these monopolies encourage the sale of alcoholic beverages at responsible prices.
