Category: Economics 10e: Ch 08

A number of UK supermarkets, including Sainsbury’s, Asda and Safeway, have been fined £116m by the Office of Fair Trading (OFT) for price fixing. The OFT is still investigating other supermarkets, including Tesco which denies that it was involved in the price collusion. The collusion is estimated to have cost consumers around £270m in higher prices.

Supermarkets fined £116m for price fixing Guardian (8/12/07)
OFT hands out £116m in fines for milk price fixing Guardian (7/12/07)
Supermarkets admit milk price fix BBC News Online (7/12/07)

Videos

Farmers reaction to price fixing claims BBC News Online

Questions

1. Explain how Sainsbury’s and the other supermarkets colluded to fix milk prices.
2. Assess the market conditions most likely to lead to price collusion in a market.
3. Examine the role of the OFT in reducing uncompetitive and restrictive practices in markets.

In the article linked to below from Slate magazine, Tim Harford, the author of the Undercover Economist, looks at how newspapers are approaching the pricing of online versions of their newspapers and articles. Why is it that all the articles we link to in these news items are free for you to read? How is this sustainable for the newspapers?

Why you didn’t pay to read this MSN Slate (27/11/07)

Questions

1. Explain the different pricing models that are available for newspapers when pricing the online versions of their papers.
2. Discuss the extent to which a newspaper website is a complementary product to the printed version.
3. Assess the extent to which competition between newspapers has driven the pricing strategies they have adopted for their websites.

Oil prices have seen a relentless rise in recent weeks with much speculation that they will go over $100 a barrel in the near future. The high oil price has seen the average price of petrol go over £1 per litre in the UK, shortages and rationing in Tehran and violence in Yemen. So what is causing oil prices to rise and what impact is this likely to have on the global economy?

Tempests, truckers and tribesmen – another week in the oil market Guardian (10/11/07)
Steep decline in oil production brings risk of war and unrest, says new study Guardian (22/10/07)
The high oil price may begin to take its toll Times Online (12/11/07)
What is driving oil prices so high? BBC News Online (6/11/07)
OPEC: the oil cartel in profile BBC News Online (18/10/07)
Oil price rises after OPEC summit BBC News Online (19/11/07)
Oil markets explained BBC News Online (18/10/07)
Oil prices BBC News Online – Evan Davis blog (10/11/07)
Super-spiked The Economist (1/11/07)

Video

The OPEC statement on oil prices BBC News Online – video link (19/11/07)

Questions

1. Using supply and demand analysis, show the reasons why oil prices are rising.
2. Using diagrams as appropriate, assess the likely impact of rising oil prices on the level of economic growth in the UK.
3. Discuss the extent to which OPEC has been the main cause of the rise in oil prices.

Reading the first article linked to below, you may be forgiven for thinking that farming has moved into the realms of science fiction. Dairy farming has moved determinedly into the era of technology and now benefits from extensive economies of scale with much higher productivity levels than even a decade ago. Yet 3000 dairy farmers are planning to leave the industry in the next two years and even the largest farms are struggling to make money. The processing sector has become significantly more concentrated and margins are being squeezed ever further by the power of the supermarkets, so has the market become unbalanced with too much power in the hands of supermarkets and processors?

Rising prices, failing farms. The strange story of milk Guardian (24/4/07)
Why British dairy farming is in crisis Guardian (24/5/07)

Questions

1. Describe the market structure of the milk industry.
2. Discuss the extent to which this market structure has changed the level of prices in the market for milk in recent years.
3. Evaluate possible measures that governments could implement to make the market for milk more competitive.

Dutch brewers including Heineken and Grolsch have been fined a total of nearly £185m between them for stifling competition and sharing price information with the intention of fixing prices. This cartel was discovered by EU investigators and the fine has been imposed by the EU competition commission.

Dutch brewers fined over cartel BBC News Online (18/4/07)
Beer makers fined in Dutch price probe Business Week (18/4/07)
EU fines Heineken for fixing beer prices Business Week (18/4/07)
Heineken and Grolsch fined for price-fixing Guardian (18/4/07)
Heineken fined 219m euro for fixing beer prices Times Online (18/4/07)

Questions

1. Explain the conditions required for a cartel to develop.
2. Explain the methods used by the brewing firms to fix prices in the beer market.
3. Evaluate two policies that could be used by the EU competition commission to try to prevent cartels reemerging in the future in the brewing industry.