ECO201A Economics for Managers Assessment Answer

Introduction

Target Australia Pty Ltd is one of the leading departmental store chains that have been owned by the Australian retail conglomerate Wesfarmers. The company specifically focuses on clothing, having the latest cosmetics, homewares, trendy electronics, books etc. Company headquarters were located in the Melbourne suburb in 2018. The purpose of the paper is to evaluate the barriers to entry, the role of the competition and the number of sellers, for the Target Company. Target stores by far have 124 stores and it has also increased its online presence (Xu, 2023)

Findings

The market where the Target Retail Pty. Ltd operates in an Oligopoly market, which can be identified in the firstly an oligopolistic market having few large sellers. Secondly, experience high barriers to entry. Lastly has differentiated or homogenous products, offering multiple manufacturers (Chen, et al., 2023)..

Barriers to Entry

As the Target Company is part of the Wesfarmers, and in the supermarket there is stiff competition between the number of sellers (oligopolies) who sell similar products in the market, yet it is the distinguishing market. In the Oligopoly market, it is the small number of sellers who control the majority of the market, by offering competitive pricing and selling similar yet distinguishing goods (Adams, 2019). The market is majorly controlled by the two big giants in the supermarket, which are Woolworths and Coles (operated by the Wesfarmers (as they control the retail space. Around 60% of the supermarket is controlled by both Woolworth’s and Cole’s market. ( Adams, 2019)

In order to diversify, Wesfarmers has invested in portfolios like Target Market which offers retail services (Chen, et al ., 2023).. The target company, to remain competitive in the market offers departmental stores that include primarily clothing, cosmetics, homewares, electronics, books, and toys. The common barriers to entry in the Oligopoly market are the:

Economies of scale: that is the large operations and scale of economies that can be exploited with the extent of the existing firms to a large extent. New entrants can face the heat of the high costs and having large-scale operations, causing the competitive prices offered in the market and produced at low costs (Tang,2021).

Network effect: There can be multiple users, linked with the value of a product or service with the other users. The strong network effect can cause an effect on the product or service, which can lemmatize the opportunity for the users...

High development & research –Oligopoly firms invest a high amount in R&D for example, during the COVID-19 period (Ahn, 2019), Target departmental stores have included the automatic body scanning mechanism, robots that could service and even use the automatic sanitisers to maintain customers' and workers' safety But for a new entrants it may not be able to invest in the research and development, and can face the problem of the spending level.

High set-up costs: High set-up costs can be sunk costs, which cannot be recovered from the market, leading to high-end operating costs such as advertising and marketing costs and other fixed costs.

Target company, also uses artificial types of barriers to entry like creating a strong brand identity, having a large customer base, maintaining a customer loyalty program and having special tax benefits. Including a regulatory license and having a patent right would help in overcoming any obstacles to entry.

Role of Competition

The role of competition in the supermarket industry is high, as there are high barriers for the new entrants and the existing competition is cutthroat (Ahn, 2019). Target continues to challenge its rivals and even compete closely with Woolworth’s brand, for example by creating differentiation, offering distinguishing pricing, creating innovative advertisements and offering positive shopping experiences.

But the small operating retailers like the independent and local retailers from the unorganized sector, can be given a tough competitor, only with the support of the government rules and regulations. Target creates a distinguishing strategy to offer more products at lower prices, invest in innovative advertisement and offer a positive shopping experience. Target focuses on the consumers guests, identifies competitive advantage and creates different product designs when it comes to the accessible and affordable strategy.

Competition is stiff so Target Company focuses on innovative consumer trends and identifies the services to be offered by recognizing the brand.

Number of Sellers

An oligopoly has a small number of sellers, who closely compete with one another in the Australian market. The number of sellers, in the grocery firms include Woolworths, Aldi and Coles (Wesfarmers including Target) that compete in the oligopolistic structure (Tang,2021) . Each seller competes closely by identifying the strategy of the other firm, such as if the Woolworths (Big W ) has lowered its prices then Target company would also lower its prices and start to operate low prices immediately. An oligopolistic market structure can create rivals' potential actions, as strategic changes. Firms in the oligopolistic markets should focus on planning and strategic options to compete and follow changes. Prices can be imitated from competitive strategies, and Target company focuses on creating economies of scale, and barriers to entry and exit (Ahn, 2019).

Each firm competes, by observing the other seller's market demand curve, which would become elastic at higher prices offered at P. At higher prices, consumers are more likely to switch to the lower priced products, consecutively with the low prices offered above the output. Demand for the oligopolies’ output can become more elastic, where the reduced prices are below P, competitors can follow suit and reduce their prices as well. Sellers then face the less elastic market demand at MD ₂ that becomes low at the P due to the oligopolist's offer at the below output level. When the pricing decisions follow, then the consumer demand for oligopolies’ products would become less elastic (or less sensitive) towards the changes to the products offered (Adams, 2019).

Product (homogeneous/differentiated)

Target Corporation has a differentiated product which is similar to the other competitors selling in the market (Tang,2021).. For example, clothes brands are the same as the competitors, yet the branding, packaging, product design and price would be different offered to the market. Target Company has created an effective positioning, through market resources and identifying the market operations (Chen, et al., 2023).

Conclusions 

To conclude, Target's brand operating in the Australian supermarket can face stiff competition with the new entrants, spending financial resources and integrating the high set-up costs. Due to the discouraged new entrants, can increase break-even output and increase profits. The high costs involve the start-up process, which can make Target company experience sunk costs including advertising and marketing costs, which are unrecoverable, but still, as the Oligopoly firm operating in the stiff competitive market has experienced distinguishing strategies to remain a unique brand and different from its competitors.

References

Adams, B., & Williams, K. R. (2019). Zone pricing in retail oligopoly. American Economic Journal: Microeconomics , 11 (1), 124-156.

Ahn, D. Y. (2019). How store format choices and market structure affect agglomeration economies and competition among chain stores in the US supermarket industry. Applied Economics , 51 (51), 5594-5608.

Chen, H., Zhao, R., Zhao, M., Yang, Y., & Li, X. (2023, January). How the price keeps constant in oligopoly market through a non-concurrent game. In International Conference on Statistics, Data Science, and Computational Intelligence (CSDSCI 2022) (Vol. 12510, pp. 47-53). SPIE.

Tang, C. S., Yoo, O. S., & Zhan, D. (2021). Time-based pricing at grocery stores? Equilibrium transition under retail competition and negative congestion externality. Equilibrium Transition under Retail Competition and Negative Congestion Externality (July 30, 2021) .

Xu, L. (2023, October). Coles Supermarket and the Australian Grocery Industry. In 2023 2nd International Conference on Economics, Smart Finance and Contemporary Trade (ESFCT 2023) (pp. 367-376). Atlantis Press.

You Might Also Like:-

Transformational Leadership in Nurse Managers Assignment Sample

What Are The Top 20 Economics Thesis Topics?

Economics Assignment Help