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Orthodox economic theory discusses "power" as market power, the ability to charge a price greater than marginal cost and reduce wages and other input costs

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Orthodox economic theory discusses "power" as market power, the ability to charge a price greater than marginal cost and reduce wages and other input costs. However, the major consequence of monopoly capitalism is that firms have the power to shape the broader economic environment.

a) Read the following extract of the article "Woolies braced for fight", which appeared in the Sydney Morning Herald, on March 5, 2013. How is Woolies attempting to shape the economic environment?

b) In what other ways do major corporations shape the broader economic environment?

c) What is the role of the State in modern capitalist economies?

Article extract: "Woolies braced for fight"

Top Woolworths executives are on the offensive in Canberra, armed with a dossier of confidential research designed to convince politicians the supermarket giant is not as big and bad as everyone thinks.

The internal document obtained by BusinessDay - titled Overview of the Australian retail market - attempts to counter many of the claims being made by the competition watchdog (The Australian Competition and Consumer Commission) against the supermarket giants, and argues that the company is under intense pressure from competitors, in particular German-owned global giant Aldi.

Coles and Woolworths have been in the spotlight since the competition watchdog confirmed it was investigating potential breaches of competition laws, including "unconscionable conduct" and "misuse of market power". The Australian Competition and Consumer Commission also stands between Woolworths and its plans to open 87 new stores in the next three years. The two sides clashed last year after the ACCC refused several acquisition applications from Woolworths.

But Woolworths' dossier warns that it faces aggressive competition from newcomers. It points out Aldi already has 289 stores in the eastern states and plans to expand this to 600 in the next seven years, while Woolworths has 690 and Coles 533 stores in the same region.

The document also puts Woolworths' market share at 28 percent - a figure that was "often overstated because most estimates exclude specialists and non-supermarkets that we compete with." In 2008, the competition watchdog estimated Woolworths' nationwide market share was about 45 percent and Coles' was 33 percent.

The main thrust of Woolies' argument against more regulation is that consumers are better off now than five years ago, and competition is tougher since Aldi's arrival in 2002. A spokeswoman for Aldi said it had a 7 percent market share, according to Nielsen.