With reference to Figure 1 and Extract A, explain one likely reason for the change

in the four-firm concentration ratio of the supermarket sector between 2010 and
2015. (4)

The four firm concentration ratio of supermarkets dropped from 76.1in 2010 to 72.5 in 2015.
The availability of various cheaper, more convenient alternatives to supermarkets reduces
supermarket power because as consumer habits change from shopping weekly to shopping
more frequently the willingness and ability to purchase expensive goods decrease and so the
cheaper, fresher products become more appealing, like the ones offered in discount stores like
aldi and lidl, thus reducing supermarkets’ market share and market power and lowering their
overall concentration ratio over the market.

3. Assess the measures the government might use to restrict the monopsony power of
supermarkets. (10)

Monopsony is a market structure in which there is only one major purchaser of goods offered.
Monopsonies have the power to exploit suppliers, asking for prices lower than offered and with
the threat of running out of business suppliers obligated into offering them lowered prices, the
lowered sales revenue reduces supplier profit margins which might make them need to cut
costs and so either lower the wages of their current workers or reduce their workforce, and so
the governments feel the need to intervene as the low wages and unemployment will harm the
economy in the long run, as it reduces AD and GDP. Governments can set up regulators to
monitor the activities of monopsony firms like the GCA, which can monitor the supermarket
industry and has the power to fine supermarkets up to 1% of their annual sales revenue when
exploiting their monopsony power. The idea of having a regulator in the industry is enough for
some supermarkets to reduce their unfairness. Also regulators like the GCA can control prices
paid to suppliers by setting minimum price, which might cover supplier’s costs of production at
least. Having a regulator means that if monopsonic firm suppliers are treated unfairly, whether
by being paid less or late, can complain and let regulators take action in promoting fair trade.
However, suppliers’ survival depends on the contracts it has with the monopsonies, and so most
firms even when treated unfairly are scared of complaining and losing the contracts they have,,
thus limiting the power of the regulators.
Governments can also subsidize suppliers who are negatively affected by the influence of
monopsony power, thus reducing the loss they make due to the late received payments, and the
lowered prices offered, which helps keep them running. However this way supermarkets, and
monposonic firms in general can make use of the fact that the government will pay the
difference and would ask for even lower prices which could affect the government negatively as
there is opportunity cost to where government expenditure goes for there are many more urgent
matters the government has to resolve financially apart from mistreated suppliers.

2. With reference to Figure 2 and Extract A, discuss the possible impact of

supermarket monopsony power on both food suppliers and consumers. (12)

● monopsony(meaning)
● Can exploit suppiler> lower prices
● Suppliers determine price depending on supply demand curve
● Pricing lower> may not cover costs of production
● Need to cut costs> fire peolpe> unemployment> reduce purchasing power> indirectly
reduces supermarket demand in the long run as they go for cheaper options
● Go out of business
● However: can complain and businesses will have to pay fine
● Governments might also pay them the diffrence they lost to monopsonies and fix their
balance sheet
● Consumers on the other hand benefit given that supermarkets get products for lower
prices they can pass it on to consumers and they would enjoy lower prices
● However they can not pass it on and get supernormal profit instead

● Supermarkets are a monopsony for food suppliers and so they try to please them to
keep them and so low prices- passed on to consumers and so cheapers ( however they
can not pass it on) also suppliers try to bend in for them as much a spossible making
price makers-- food suppleirs start lossing profit just for the sake of keeping customers
happy until they ca no longer and then go bankrupt ( unemployment)however if they tell
ayhtourities then supermarlket eill be fined and can get paid

Monopsony is a market structure in which there is only one major purchaser of the
goods offered. Supermarkets are the food suppliers’ monopsony and so, food suppliers
will go to great lengths not to lose them as losing the supermarkets will eventually lead
to the closing down of the firm as they will no longer have enough sales to cover up
their costs and expenses.
Being a monopsony gives a firm the power of a price maker, and so supermarkets can
exploit food suppliers into giving them products for prices lower than their original
causing major financial issues to the suppliers as the new prices might not cover costs