HookFour firms, two-thirds of the market
Tesco, Sainsbury's, Asda and Morrisons together hold roughly 65% of the UK grocery market. They almost never run sustained price wars on staples — milk, bread, eggs. They compete instead on range, location, own-brand, and loyalty schemes. The four-firm concentration ratio (CR4 ≈ 65%) is the textbook oligopoly fingerprint. The kinked demand curve, where each firm believes rivals will match price cuts but not price rises, predicts exactly this pattern.
Underneath the visible competition, there's an implicit understanding: nobody actually wants a price war. When Tesco tried "Project Reset" in 2014 and slashed prices on 380 staples, Asda matched within a week and the whole sector saw margins fall for six quarters. The textbook lesson held: in an oligopoly, the dominant equilibrium is non-cooperative price stability with vigorous non-price competition.
ModelFour structures, one spectrum
Perfect competition — many small firms, identical products, free entry/exit, perfect information. The price-taker case. Useful as a benchmark; rare in reality. Monopolistic competition — many firms, differentiated products, some pricing power but no long-run abnormal profit (hairdressers, cafés). Oligopoly — few firms, interdependence, strategic behaviour. Kinked demand and game theory live here. Monopoly — one firm, high entry barriers, sustained abnormal profit. The textbook welfare loss case.
Contestability theory changes the conclusion: even a monopolist behaves more competitively if entry is genuinely free. The threat of entry, not actual entry, is what disciplines incumbent behaviour. This is why CMA decisions on M&A often hinge less on current concentration than on barriers to a new entrant.
ExamWhat examiners want
Identify the structure before applying the model. A "supermarket" case wants oligopoly with kinked demand; a "café" case wants monopolistic competition. Strong essays open with a one-sentence structural diagnosis.
The evaluation move is contestability. "Tesco may have 28% market share, but Aldi and Lidl entered the UK from zero in 1990 and now hold ~18% combined (Kantar 2025) — entry is contested" — that's the line that gets the top band.