The recent news of Tesco’s acquisition of all nine Shoprite supermarkets on the Isle of Man will substantially change the grocery market in the Isle of Man. While it might be a reasonable business move for the businesses involved, the deal’s implications could stretch far beyond the profit margins of these corporations. It raises the spectre of economic concentration – a situation where a small number of companies unreasonably dominate the grocery market in the Isle of Man. In this context, the role of the Office of Fair Trading (OFT) must investigate to ensure that this acquisition does not negatively affect consumers in the long run.
Manx TaxPayers’ Alliance Comment
“While the Tesco-Shoprite deal might seem like just another acquisition, its implications for economic concentration on the obviously-constrained Isle of Man market are far-reaching. Given the risks involved—market power, reduced consumer choice, and potential inefficiency—the Office of Fair Trading must step in to conduct a rigorous investigation into the deal’s potential effect on consumers,” said Michael Josem of the Manx TaxPayers’ Alliance.
“By understanding and mitigating the risks of economic concentration, the OFT can ensure that the market remains competitive, innovative, and most importantly, favourable to consumers,” said Josem.
The Risks of Economic Concentration
Market Power
When a single player or a small number of companies control a large market share, it can yield undue market power. This might lead to practices like predatory pricing, where the dominant firm sets prices at unsustainable low levels to drive out competitors, only to hike prices later. While there is no evidence of plans to do so, the Office of Fair Trading should investigate and consider whether to permit this buyout to happen.
Reduced Consumer Choice
Economic concentration can lead to reduced consumer choice. With Tesco controlling all nine of the supermarkets that were previously owned by Shoprite, consumers on the Isle of Man may find their options severely limited.
Inefficiency
Companies in concentrated markets may not have the impetus to innovate or improve operational efficiencies. With reduced competition, the need to outdo rivals in areas such as pricing, quality, and service diminishes.
The Role of the Office of Fair Trading
Market Investigation
In accordance with Manx legislation, the OFT should conduct a comprehensive market investigation to assess whether this acquisition creates a situation of economic concentration detrimental to consumer interests. This could include studying price trends, market shares, and ensuring legally-enforceable pricing commitments. This might include linking Tesco Isle of Man grocery prices to prices in the United Kingdom.
Consumer Impact Assessment
Specifically, the OFT needs to assess how the acquisition affects consumer choice and pricing. If Tesco starts limiting product variety or hiking prices, that would be a direct negative impact on consumers.
Regulatory Measures
Depending on the findings, the OFT can then consider taking regulatory measures ranging from imposing conditions on the deal to stopping the acquisition.