and supermarket chains The power of two: squaring off with Australia’s large supermarket chains

The level and nature of competition in supermarket retailing in Australia has beenhotly debated as a policy issue in recent times. The creeping acquisitions of smallergroups by Coles and Woolworths have led to several investigations amid claims thatconsumers will be disadvantaged by the growth of the two big chains. Yet little convincingevidence has been found to support these assertions. Although on occasionsthe big two may have used their power vertically to squeeze suppliers, consumers haveexperienced highly competitive retail markets. In this paper, it is argued that it is marketconduct, not structure, that should be the prime focus of regulatory and policyinterest, and that recent corporate activity may lead to a third force in supermarketretailing in Australia that could not only ensure continued competitiveness in theindustry, but could also help to constrain the successful exercise of vertical marketpower by the two big chains. Accordingly, it is argued that intervention as a generalpolicy in supermarket retailing would not be socially efficient, at least not until a widerange of objective and quantitative assessments have been carried out on the operationof the supermarket sector.