Xenophon’s war on supermarkets

In defiance of basic economic logic, Senator Nick Xenophon has called for the Gillard Government to dismantle the Coles-Woolworths duopoly that dominates 80% of the groceries market (Call to dismantle duopoly):

THE Federal Government needs to consider dismantling Coles and Woolworths’ dominance of the Australian retail market, according to Independent Senator Nick Xenophon.

Mr Xenophon was speaking after a tense day of testimony from Coles and Woolworths senior executives in Canberra on Tuesday, appearing before the Senate Economics References Committee’s hearing into the impacts of supermarket chains’ pricing decisions on the Australian dairy industry.

The milk price discounting war stated on January 26 when Coles slashed its home branded milk products to $1 a litre – a marketing move followed soon after by Woolworths and other retail supermarket chains.

There may be a case for government intervention if Coles and Woolworths were abusing their market power – i.e. price gouging and earning monopoly profits. But so far we’ve seen the opposite. They’re engaged in vigorous price competition which is detrimental to their profitability.

Sure you can argue that this will drive the IGAs and 7-11s out of business because everyone is shopping at Coles and Woolies now due to the cheap milk and bread, but I doubt this will happen. These stores will always attract customers who just want to pick up a couple of items on their way home from work.

Also, at least in Queensland, the smaller retailers are protected by our backward retail trading hours, which mean Coles and Woolies shut at 9pm during the week and 6pm on weekends. The packed Milton IGA at 6.20pm last Sunday night left me in no doubt about the viability of the smaller retailers.

And the idea that this is predatory pricing that will destroy smaller retailers is just a hypothesis which hasn’t yet been proved. Before we go and break up successful Australian businesses, not to mention big employers, we better make sure we have a solid case, including evidence of a large increase in the duopoly’s market share as a result of this alleged predatory pricing.

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