The visible hand in economics

Are supermarkets too uncompetitive for Warehouse Extra?

Posted on: December 5, 2007

So the High Courts documents on the Warehouse merger ruling have been released. After skimming a couple of things I thought I would say something, then when I’ve actually read the document I can join in the criticism of it 🙂

It seems that the High Court overturned the Commerce Commissions decision as it felt that the Warehouse Extra concept would fail. As it would fail, it doesn’t matter whether one of the supermarkets purchases the company. Ok, thats cool, however they also go off and accept that there is probably tacit collusion between the two supermarket owners, Woolworths Ltd and Foodstuffs.

Now here is where I get interested. Does the Warehouse Extra concept fail because there is no room for it in a accommodating equilibrium, or is it because the barriers to entry are so severe that the Warehouse Extra store would not be able to enter, even if it would be profitable. I think this distinction is important. If the Warehouse Extra idea just sucks and there is no room for it, then thats fine. However, if the High Court believes they will fail because the barriers to entry are too high even for a company of the Warehouses’ size, then we definitely have an anti-competitive streak in the supermarket industry which the Commerce Commission will need to solve.

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