Cambridge International as and a level Economics Ebook

188
Cambridge International A Level Economics

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market shares in the last year, notably Aldi which has now around 
4% of the market. They have also begun to stock new products 
that have appeal to a wider spectrum of customers.
The response of the Big Four has been to embark on a 
vicious no holds barred price war. 
Recently:
■
Asda announced at the end of 2013 that it would spend 
£1bn cutting prices over the next five years.
■
Tesco then announced a £200m cut in its prices of core 
products, including fresh vegetables, and a scheme to 
reduce the price of petrol to its loyal customers.
■
Morrisons then followed a year of heavy losses by 
announcing that it was cutting its prices by £1bn over 
three years.
■
Sainsburys has remained committed to its ‘Brand Match’ 
policy of refunding to its customers any diff erence in its 
prices on selected items compared to competitors.
Tesco has until now been the price leader. Its profit margin 
is greater than its rivals although this has been shrinking. 
Whether it will be forced into taking further action on prices 
is by no means clear. It could well be that the price-cutting 
campaigns that have been launched are a battle that none of 
the Big Four can win. Only time will tell.
a
What evidence is there to indicate that the UK 
supermarket business is an oligopoly? What 
further evidence might you need to be more 
certain that this is the case? 
[4]
b
Comment on the suggestion that Tesco’s position 
as price leader is being undermined.
[4]
c
Other than price cutting, analyse the ways in 
which the Big Four might restrict the growth of 
new entrants such as Aldi and Lidl.