What economic theory explains why grocery oligopolies can maintain high margins?

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Oligopoly theory explains how a few large competitors can maintain high margins through tacit coordination without formal collusion. In grocery retail, a small number of dominant chains (Walmart, Kroger, Albertsons/Safeway, Costco, Ahold Delhaize) control most market share. The FTC found these larger retailers with considerable leverage maintained margins at 7% above costs even as supply chains normalized. Oligopoly theory predicts this outcome: when markets are concentrated, firms can observe competitors' pricing and coordinate on higher prices without explicit communication. If one raises prices citing inflation, others follow. No one undercuts because all benefit from elevated margins. This tacit coordination becomes easier when cost shocks (like pandemic disruptions) provide cover for price increases. The FTC's sticky-at-the-top finding confirms oligopoly behavior: firms raised margins during disruptions, then maintained them through implicit coordination rather than competitive pressure forcing prices down. This market structure allows companies to exploit inflation for profit gains rather than just passing costs through proportionally.

What economic theory explains why grocery oligopolies can maintain high margins?

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