OLIGOPOLY IN UK RETAIL MARKET

Oligopoly in UK retail market





Oligopoly

An oligopolistic market consists of only a few producers. Furthermore, entry by new firms into the market is impeded; consequently, firms in an oligopolistic industry can earn substantial economic profits over the long run. Products produced by oligopolies can be relatively homogeneous, like steel, or differentiated, like automobiles. Many industries are oligopolistic, including aluminum, cigarettes, breakfast cereals, petrochemicals, computers, and tennis balls.

Predicting oligopolistic price and output or decisions about non price strategies such as advertising or investment decisions is complicated. Each firm realizes that any significant move on its part, such as a decision to cut price by 10% or to run a new advertising campaign, is likely to result in countering moves by its competitors. Firms therefore have to try to determine their competitors' probable responses as they make their decisions. (Tremblay 2007, 110-150)

UK retail Market

Capital-at-risk products were the top dogs in the UK retail market in December, flourishing in the prevailing low interest rate environment. The three biggest providers of structured products in the UK accounted for 60% of issuance in December 2010 and were, in order, Investec Structured Products, Barclays Bank and Gilliat Financial Solutions.

There is no change to the top three product types issued in the UK retail market: capital-at-risk kick out products, capital-at-risk accelerated growth products and capital protected capped growth products. The two capital-at-risk products do well in low interest rate market conditions as investors seek leveraged returns with some risk to capital, as these products are typically offered with varying levels of soft protection. (Nicholson 2007, 56-61)

As always, the more risk the investor takes on, the higher the level of potential returns that can be earned. An underlying with a high volatility enables the provider to purchase more units of upside for any given level of volatility. The third most popular product type: the capital protected capped growth product, answers demand from investors looking for index-linked returns but not wanting to place their capital at risk. (Tremblay 2007, 110-150)

Capital-at-risk reverse convertible (income products), capital at risk accelerated growth products and kick out products were the three top product types this month in the US in terms of notional sold. Last month, 60% of notional sold was done so via accelerated growth product types. This month, however, accelerated growth only accounted for roughly 39% of the total notional sold in the US of the products covered on structurededge.com. (Cabral 2000, 11-19)

This fall is partly because there are now more product types covered by structured edge.com and partly due to the fact that there has been an increase in notional in the existing types, namely reverse convertibles and kick outs. The amount of notional sold of reverse convertible products rose to roughly 29% from 1 8% in October 201 0. Kick out products (called review products in the US) also rose compared with October. (Besanko 2009, 34-45)

Research methodology

Included in each research report on the following pages are scores given out of 10 for transparency, value ...