Supermarkets - Aunt Sallys or useful case study on economic agents’ behaviour?

Supermarkets provide us with fascinating examples for teaching about behaviour of many economic agents in markets – consumers, suppliers, government, pressure groups etc, and market structure. There is some wonderful material linked to a BBC Panorama programme.

Their monopsonistic buying power is contested by farmers and other suppliers complaining about prices (and their producer surplus) being forced down. Would consumers really like to see the costs of their foods rise, with a reduction in their consumer surplus?

Conflicts of interest are never far from the surface, and undoubtedly the buying power of supermarkets does mean that some farmers are faced with reductions in revenues and incomes, if farmers had their way, could it mean that households’ real disposable incomes for non food items could fall?

With respect to supermarket suppliers The Telegraph has a story about a bidding war for Northern Foods, a firm which supplies many own label goods to the supermarkets.

The role of local government can be considered as planning applications alter the value of a scarce resource land, and the market share of the supermarkets. The work of other government agencies like the Competition Commission can be explored, along with that of pressure groups  and the written and broadcast media. After all changing perceptions of the supermarkets may mean that we are being encouraged to change our buying behaviour.  The BBC material has plenty of examples of normative economics in action.

Supermarkets provide us with cheaper food, although questions could be raised about the external costs of driving to and from to their sites.  Unlike parts of the media, which also enjoy the benefits of an imperfect market; supermarkets make profits, and are forced by The Companies Acts to declare sources of income, costs in their annual accounts.

So as you finish your Christmas shopping consider how examples from the supermarkets illustrate the role of profits, prices, governments, pressure groups. Students could be asked if they can discern the limits of a free market and the forms of government intervention in a mixed economy.

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