markets can be reduced to form duopolies

The Reserve Bank measures against some hard facts and this set the mind thinking: Is it the producer, the retailer or the customers fault markets can be reduced to form duopolies?

Looking at recent RBA farm to middleman to consumer reports, over the last nine years conclude: Retail goods prices rose by only about 1% a year. Retailers managed rising costs of approximately 3% a year and did not suffer in their net profit margins?

How did the retailers do it?

  • The volume of sales increased and they used less workers by investing in labour-saving equipment.
  • They increasingly substitute cheaper imported goods for locally made goods.
  • They concentrate on being a service industry and tend to stock more profitable lines.
  • They must service their shareholders before concern for producers livelihoods.

Now, it seems it is not the retailers’ fault, it is the power of market forces – customers want to pay less not more!

Now, looking a little closer at behaviours of the market to give customers more for less a clearer picture evolves:

  • Starting with the manufactured cost of the goods. It is about half of the retail prices we pay. Simple maths in the breakdown of costs suggests the profit to the retailers is between 7 to 10 percent. So rapid turnover reins as king of retail and only the major players have the means to reach the consumer with the volumes, and those needing higher returns to survive just fade away. Easy to understand when explained like that is it not?
  • Now consider the cost of production and prices of locally manufactured goods rose strongly over the period, and the producer has the problem of competing against cheaper imports. The producers have now become ‘price takers’, and have very little say in what they get for their efforts. The luxury of rapid turnover margins is not the option for producers that retailers enjoy.

So who is at fault that two retailers dominate our retail space, and producers get screwed?

The opinion of CO2Land org is the reference below is strongly suggestive, but in the interest of balance you should –
Read more: http://www.canberratimes.com.au/opinion/politics/farmers-good-big-retailers-bad–could-that-really-be-true-20120710-21tue.html#ixzz20Hg5YoDj

 

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