The supermarket

The supermarket is a phenomenal force, it’s pretty difficult to imagine life without it.

We’re surely all familiar with the success of the supermarket as a business model. It’s probably fair to say that just a few players are close to world domination. Tesco, for instance, already has 58 stores in China after opening the first one in 2007 – there are over 3,700 Tesco stores worldwide.

Putting this all into economic context, we could say that supermarket chains are scrambling to get to a point where the can enjoy the benefits of being both a monopoly and a monopsony.

Monopoly: a market situation in which a single seller controls the entire output of a particular good or service.

Monopsony: the situation in which there is only a single buyer in a market.

Both situations carry huge implications for the firm, if there’s no competition they take every penny that falls into that market. That also means huge implications for anyone who deals with them as a consumer or producer. For instance – it would be reasonable to assume that, if there is just one seller or buyer, you’re going to pay more for what you buy, and receive less for what you sell. Which of course sounds bad, and brings to mind scenes of milk being poured down drains.

But it’s a funny one. Look at how we live now and many people will say our “quality of life is much higher than ever before”. The supermarket almost certainly has something to do with it: our average spend on food has decreased substantially (when measured as a proportion of our total spending on everything) and we can spend our money on much more fun things. How did the supermarket make this happen? Though monopsonist tactics.

Since firms as big as Walmart, who own Asda, have buckets of “buying power” – they can dictate prices to producers of biscuits, eggs, umbrellas because they know they can sell massive volumes – can you imagine how many loafs of bread are sold through Tesco’s 3,700 stores? Thus, they buy from producers in bulk, and we know that usually means hefty discounts. So, you could say that they’ll make one baker unhappy and millions of people very happy when they pay him a meagre amount for his bread, and sell it to us for a bargain price to get one over on the competition.

And who doesn’t love a bargain?

Which surely makes you realise that the supermarket, one of the world’s most successful middlemen, know us all too well and knows we’ll always be back for more. It’s true, no?