Question 1

When and why did the authorities start looking at the UK groceries market?

Accepted Answer

2006: Office of Fair Trading market study Found evidence of significant barriers to entry ● shortage of land around town centres --\> structural barrier to entry ● complex and time consuming to obtain planning permission --\> not a big problem for larger players, but for new supermarket it was a significant barrier ● large supermarkets acted strategically when purchasing undeveloped land --\> didn't even put supermarkets on this land or developing on it even though they already have a supermarket close by 2008: Competition Commission market investigation final report --\> Confirmed a lot of what the Office of Fair Trading had found Two of four major recommendations: ● prevent land agreements that can restrict entry by competitors ● the inclusion of a ‘competition test’ in planning decisions TEST: A firm that already has a store in a local market can only open a new store: ● when there are 3 or fewer firms in the town, if its market share \< 60% ● when there are 4 or more firms in the town

Question 2

What did the UK competition authorities use as a basis for the competitive test for supermarkets in the groceries market?

Accepted Answer

1972: Federal Trade Commission issued a section 5 complaint for RTE (Ready to eat) cereal market ● Firms: Kellogg’s 45%, General Mills 21%, General Foods 16%, Quaker Oats 9% ● 1950-1972: biggest 6 firms had introduced 80 new brands, none from new entrants “These practices of proliferating brands, differentiating similar products and promoting trademarks … result in high barriers to entry” Proposed structural remedy: create 5 new firms through divestments from big 3 1982: Administrative law judge The case was dismissed: ● No conspiracy to deter entry through brand proliferation ● Strategic entry deterrence can occur naturally from competition

Question 3

Discuss the implications of store/brand proliferation?

Accepted Answer

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