United KingdomSupermarkets
In October 2000 the competition Commission reported on the supplyof groceries from supermarkets in the United Kingdom. It containedthe following information.
- the prices of groceriesin the UK tended to be higher than in other European countries.
- there was a clear difference between farm gate prices and theretail prices of the groceries sold in the supermarkets
-there was an overall decline of 9.4% in the real price of foodfrom 1989 to 1998.
-supermarkets face high competition from small grocery stores ascustomers are tied to shops closest to their homes (not more than15 minutes away) to do their main weekly shopping.
-however some large supermarkets were able to price their productsmuch lower than small grocery shops due to their long run averagecosts.
-supermarkets also varied their prices in different geographicallocations.
a) using demand and supplyanalysis identify one reason for grocery prices being higher in UK compared to other European countries.
b) from the information given,was it cheaper to purchase food in1998 than in 1989?
c) why are large supermarkets able to price their products muchlower than small firms?
d) discuss whether it can be concluded from the passage that super markets were maximizing profits.