A few issues back, the editor of this publication noted that the price of a dozen eggs—$3.88— was exactly the same at a few grocery stores he visited. (Bread, Cheaters, and our new community board, July 29) Like so many others, this caused the editor to pause and perhaps wonder about the phenomenon. Coincidence, or maybe something more sinister? Journalists think that way.
Well, part of the answer is the fact that the grocery industry in Canada is referred to, in economic terms, as an oligopoly. That status is as near to a monopoly as dammit is to swearing.
In the simplest terms, an oligopoly is the condition where there are very few, usually large suppliers to serve the entire market for their particular products or services. In Canada, there are three very large corporate chains that have captured about 61 percent of the $147 billion dollar market for groceries. Loblaws (28 percent), Sobey’s (20 percent) and Metro (11 percent) are the three chains. Each of these operators also has subsidiaries that may or may not be discount brands. For instance, Food Basics is another brand under the Metro retail grocery conglomerate. When one of these operators sets the price for their products the others just follow.
It is not quite clear to me how such a price change is communicated. Likely competitive shopping could be involved. For instance it can not be directly communicated, as that would be referred to in economic terms as ‘price fixing’. This is illegal according to the Competition Bureau of Canada and punishable under the law. One might remember that just awhile ago the major bakeries and retailers were found to be guilty of price fixing loaves of bread. Their punishment was to require them to return a stated amount of money to bread purchasers who claimed the refund. Those who participated in this secret scheme were required by the courts to pay millions of dollars to buyers of bread at retail in lieu of fines.
At one time I worked for a major Canadian oil company in the retail gasoline side of the business, which is another example of an oligopoly. On occasion, a so-called price war would break out in some markets. We employees were to resolve these costly conditions but never, ever in collusion with a counterpart from one of the few other branded automotive gasoline retailers.
One of the issues of having these market conditions is that they are usually so powerful that they make it difficult for newcomers to enter the market. In some cases their existence might be economically beneficial where the capital costs of operating or producing the product are astronomically high. The steel and rubber making processes are very costly to start up and operate. Thus, there are very few of these operations and therefore those that exist operate in an oligopoly environment.
In fact there are quite a few monopolies operating in various sectors of the North American economy. Oligopolies are not illegal but are frequently studied and investigated by academics and governments.
Generally speaking many people dispute the pros and cons of oligopolies and expect the government to intervene and cause the creators of such market conditions to reduce their size and control. For instance, a company may be required to completely separate a division of its operations and set up a uniquely independent operation.
My sense is that the members of an oligopoly would vigorously resist any attempt to dissolve their size and influence over the market of their interest. It is in their best interests to discourage newcomers from entering the market they are supplying.
Contrary to the interests of the big three, two new entrants have recently opened their operations to the food marketing industry. Walmart relatively recently entered the food retailing business and has captured 8 percent of the market. Similarly Costco has been a recent entrant to the market and gained an 11 percent share.
One might presume that as more organizations enter an oligopoly that more competitive pricing will result for the products and services of that industry.
Correction: An earlier version of this column said that Food Basics' parent company was Sobey's. It is in fact Metro.
