PALASH KUMAR KUNDU BBA, MBA, MSc (Glasgow)

Senior Teacher, SFX Greenherald Int'l School, Dhaka

Ex-Senior Teacher, Sunbeams and Mastermind
Contact: 01720-502206

ECONOMICS 9708/4
Paper 4 Data Response and Essays (Supplement)
40 Minutes
No Additional Materials are required.

READ THESE INSTRUCTIONS FIRST

An answer booklet is provided inside this question paper. You should follow the instructions on the front cover
of the answer booklet. If you need additional answer paper ask the invigilator for a continuation booklet.

Section A
Answer Question 1.

You may answer with reference to your own economy or other economies that you have studied where relevant
to the question.

The number of marks is given in brackets [ ] at the end of each question or part question.

This document consists of 3 printed pages

 Stores wars hits the UK supermarket business

The supermarket business in the UK is dominated by the so-called Big Four. The market shares in
March 2014 are shown below:

Tesco 28%
Asda 19%
Sainsburys 18%
Morrisons 11%
Other established supermarkets, notably the Co-operative and Waitrose, are way behind with
market shares of 5 6%.

Over the year to March 2014, Tesco and Morrisons have lost out whilst the other two have hung on
to retain or marginally increase their market share.

UK supermarkets are in a fiercely competitive business. Since 2008, consumer spending on food has
been cut mainly as a result of recession. At the same time, established supermarkets have faced a
new challenge from German owned discounters Aldi and Lidl. When they first entered the market
few years ago, they had a no-frills image and often sold products that were unknown to UK
consumers. That has now changed. Both have expanded their 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 on 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.

Morrsions 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 difference 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 future action on prices is by no means
clear. It would well be that the price-cutting campaigns that have been launched are a battle none
of the Big Four can win. Only time will tell.
Answer the following questions

1. 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]

2. Comment on the suggestion that Tescos position as price leader is being undermined. [4]

3. Other than price cutting, analyse the ways in which the Big Four might r estrict the growth of
new entrants such as Aldi and Lidl. [6]

4. Discuss the extent to which the stores wars described above is in the best interests of the UK
consumers. [6]

TOTAL FOR EXAM 20