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Abstract
The level and nature of competition in supermarket retailing in Australia has been
hotly debated as a policy issue in recent times. The creeping acquisitions of smaller
groups by Coles and Woolworths have led to several investigations amid claims that
consumers will be disadvantaged by the growth of the two big chains. Yet little convincing
evidence has been found to support these assertions. Although on occasions
the big two may have used their power vertically to squeeze suppliers, consumers have
experienced highly competitive retail markets. In this paper, it is argued that it is market
conduct, not structure, that should be the prime focus of regulatory and policy
interest, and that recent corporate activity may lead to a third force in supermarket
retailing in Australia that could not only ensure continued competitiveness in the
industry, but could also help to constrain the successful exercise of vertical market
power by the two big chains. Accordingly, it is argued that intervention as a general
policy in supermarket retailing would not be socially efficient, at least not until a wide
range of objective and quantitative assessments have been carried out on the operation
of the supermarket sector.