HI5003 Economics for Business

Tri2 2016

Market Structure

From Duopoly to Monopoly

Case Study of Masters Home Improvement

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 Table of Contents

INTRODUCTION: 3

FROM DUOPOLY TO MONOPOLY: 3

CONCLUSION: 6

REFERENCES: 7

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Introduction:

Over the past couple of decades or so, the business environment in every region, associated with

any industry and sector has changed significantly. Competition has reached to its peak, consumer

behaviours are changing rapidly, legal frameworks and polices and getting stricter and stronger

day by day as well as the environment and sustainability related pressure is increasing on

corporations to deal with (Ji, Chang, and Huang, 2016). As a result of all the challenges and

problems, it has become much more difficult for companies to deal with, and attain their

business growth and success related targets. Despite all such challenges, there have always been

some positive factors such as evolutions of technologies, increasing demand of every product

and services as well as the globalization which has supported the growth of domestic and

multinational companies too. Weller, Kleer, and Piller, (2015) argued that the combination of

micro and macro factors along with the organizational strengths and weaknesses develop market

structures in which companies operate. Some companies deal with the challenges adequately and

survive, but some fail completely and knocked brutally out of the market as whole.

This short analytical report focuses on the case of Masters Home Improvement, which emerged

as the most dominating DIY retailer in Australian region, but sooner decided to quit. Considering

the economic theories of oligopoly to monopoly, the Australian DIY sector is analysed, mainly

circulating around the case of Masters.

From Duopoly to Monopoly:

Masters Home Improvement was one of the most promising, but unsuccessful corporate

initiative from Australia’s leading retail giant known as Woolworths. The subsidiary was

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established in 2011 with an aim to become the giant of Australian DIY sector, but sooner started

experiencing challenges. It is important to note here that in 2011 the Australian DIY sector had

several retailers but majority of the market shares were hold by Bunnings. It all sounded very

easy and a piece of cake of retail giant to enter into a new market segment and make Masters as

its most profitable business unit. However, the reality was significantly horrible and nightmare

for Masters. This strategic move swallowed nearly $3 billion back in 2009 and completely failed

to post any positive and profitable financial result since then. According to the findings, the

Masters have piled up the total losses of over $500 million, leaving top level management with

scratching heads and biting nails. The findings further revealed that since it was established till

2016, the company only managed to capture 2% of the total market shares, which is a clear

failure (Koehn, 2016).

Further analysis revealed that the Australian DIY sector was monopolistically structured,

Bunnings being the only major and leader in the market. It is also argued by market analysts and

industry gurus that Masters was basically a move to convert DIY sector from Monopoly to

Duopoly. Woolworths had strong believes on its brand image and strategies but failed

completely. Woolworths invested huge amount of financial resources and directed its so much

effort towards Masters that it started losing control on its primary activities and cash cow i.e.

already established retail segment. Therefore dual focus was one major issue that remained the

key reason behind failure too. In addition, it is also argued that Masters kept selecting the wrong

locations to establish its retail unit, and Bunnings kept selecting the right locations. Another

major criticism was the fact that Masters offered the wrong products at the wrong time, leaving

customers puzzled and looking back at the Bunnings. Again, the existing player i.e. Bunnings

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utilized its experience and kept sitting back watching the every single move from Masters which

eventually proved deadly for itself (Stewart, 2016).

Today, Masters has announced that Australian people are going to witness and enjoy the

country’s largest and most promising sale. However, this promise is made to make exit easy,

rather than winning customers’ trust, loyalty and market shares. Bunnings at the other end seems

happy and rubbing its hands again for the growth with no competitor and win without any

rivalry. It is found out that the December 11 shall be the last day for Masters and till then $700

million of stock will be sold out with the collection budget of $500 million, adding another $200

million in losses. The top level management is however found to be conscious about the impacts

that this $700 million sale will have on its future customers. The current rival i.e. Bunnings

believes that such as huge sale might change consumer behaviour especially in terms of prices

and in future it will have to be ready to deal with the shifts in consumer behaviour (Pash, 2016).

The main reason that restricted Masters to convert the Monopoly structure of DIY sector into

Oligopoly included weak strategic planning, lack of market understanding and inability to realize

the competitor’s (i.e. Bunnings) strengths and weaknesses. It was rather wise for Masters to

understand the gap between market’s gap, opportunities and strengths, as this would have

assisted it to establish and focus on opportunity. However, Masters could neither understand the

market nor it tried to focus on competitors’ moves and strengths.

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Conclusion:

From the above presented analysis and discussion, it is observed that the Australian DIY sector

was once monopolistic structured in which Bunnings was the only market leader. Later Masters

moved into the sector, but later posed itself as a tenant, by bearing huge losses and eventually

left, leaving the market open once again for Bunnings. It is therefore learnt from the above case

analysis that moving into any market structure may be an easier task, but ensuring long term

stability required flawless strategies, stronger control, detailed planning and analysis as well as

adequate decision making.

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References:

 Ji, L., Chang, J.J. and Huang, C.Y., 2016. Unionization, market structure, and economic

growth. Southern Economic Journal, 82(3), pp.935-951.

 Koehn E, 2016, Masters’ $700 million fire sale to add fuel to fight between Bunnings and

independent DIY sector, Accessed on 23rd August 2016, Available at:

http://www.smartcompany.com.au/industries/retail/74474-masters-700-million-fire-sale-

add-fuel-fight-bunnings-independent-diy-sector/

 Pash C, 2016, This is why the Masters hardware business failed, Accessed on 23rd August

2016, Available at: http://www.businessinsider.com.au/this-is-why-the-masters-

hardware-business-failed-2016-8

 Stewart E, 2016, Masters: Five reasons Woolworths is pulling the plug on struggling

hardware chain, Accessed on 23rd August 2016, Available at:

http://www.abc.net.au/news/2015-05-06/five-reasons-woolworths-is-being-hammered-

on-hardware/6450364

 Weller, C., Kleer, R. and Piller, F.T., 2015. Economic implications of 3D printing:

market structure models in light of additive manufacturing revisited.International Journal

of Production Economics, 164, pp.43-56.

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