A price war is a period in which several firms competing within the same market will react to the other firms lowering of price by lowering their own price. Left unchecked, a price war can spiral into a string of ever-lower price cuts that evaporate profits margins. The price war between Coles and Woolworths has both its benefits and its negatives. On the surface, lower prices mean a better deal for customers. However, in some situations it can work the other way. If a large firm (like Coles/Woolworths) can drive competitors out of business through aggressive price cutting, then consumers are left with fewer choices in the end. The remaining firms gain more pricing power over time, since there is no longer an established set of competitors.
According to businesses who supply to Woolworths and Coles, for Woolworths and Coles to be able to sell products at low prices, they would exert their market power on suppliers whose majority of products were sold to them and were dependant on them to operate. The suppliers were pressured to reduce their prices or threatened be released as a supplier. This effectively forced suppliers to drop prices or lose their largest source of revenue and potentially result in closing down. The long-term implications of this would be that as suppliers are unable to sustain their business due to price cuts, they would close down and result in many brands ceasing to exist. This would greatly impact consumers as it would reduce the range of products and limit consumer choice. The low prices also create a high barrier to entry for new businesses and effectively run smaller retailers out of business, further reducing the already low level of competition. This would additionally negatively impact consumers because as the level of competition decreases, prices for consumers would rise due to the lack of
In Porter’s model he refers to the threat of substitutes that companies face every day. When more substitute products become available to the public, the price elasticity of that product increases because customers now have more options. Once more substitutes begin to enter the market the demand for a certain product will become more elastic. If multiple other companies were to make substitutes that competes with ALDI’s product, then ALDI’s total profit would decrease because the demand for their product would decrease. Because there are many grocery stores that carry similar products that ALDI carries it makes the force strong. However ALDI has a different approach to their daily operation that no other company does. Some of the things that ALDI does, is make the customer use a quarter to unlock the shopping carts, which forces the shopper to return the cart back to its original spot. By doing this, the company saves money because they do not have to pay employees to retrieve the carts. With the money that they save, they are able to keep the overall price of their products low for the customers. Another thing that ALDI does to save
As both brands have offered a low-price guarantee of some kind, they are continually lowering price points in order to offer customers the best deal, in a bid to retain loyal customers, and gain new sales, however, this means that they are significantly reducing their overall profitability, which could pose a financial weakness long term (ASDA Price Guarantee, 2016; TESCO Brand Guarantee, 2016). Further this can block their access to enter the international market, and has specifically posed a weakness for ASDA, because their brand policies will not allow them to inter markets where regulation prevents them from price cutting or matching with local
On the other end of the spectrum Woolworths prides itself on ‘value for money’ therefore its pricing structure is very dynamic and can vary from store to store and economic determinants. Woolworths recognises the need to participate in ‘price’ to stay competitive and employ the strategy of ‘KVI’. ‘Woolworths will conduct weekly basket checks against the price of its competitors ensuring that prices remain competitive on items that are relevant to that week or month and to flag products that erode value over time’ (3.2.13 KHAN. S, 2011) & (3.2.8 KHAN. S,
According to antitrust laws put in place by the government,the unfair competition and the act of setting premium prices without considering the buying power of the suppliers is condemned. Antitrust laws discourages monopolistic competition which elimi...
In the Beverage Industry Coca-Cola owns approximately 42% of the Industry where as Pepsi Co. owns approximately 30%. Since 1886, Coca-Cola has been present in the market where as Pepsi Co. entered the market 13 years later. Oligopolies perpetuate themselves and discourage new investments in several ways. One example is having access to key resources, whether it’s natural resources or patented process or special knowledge. This creates difficulty for new firms to enter the industry without access to those resources. In addition with experience of keeping cost low, oligopolies benefit significantly in cost advantages which discourages new firms from entering. An example of this would be a new firm attempting to attract new consumers with a new product rather than an established product. With having an established product oligopolies are able to obtain lower prices from supplies thus allowing them to create predatory pricing aimed at driving smaller competitors out of business. Since they are the two dominant market holders in the Beverage Industry they acquire most of the sales volume. This allows the companies to reduce prices on their products to discourage new firms to continue as they will have to follow the trend. In contrast they increase prices to remain in the market and protect their industry from the expansion or interest of other
Since Qantas and Virgin are the only two airlines supplying domestically in Australia, they account for all of the profits in the market and consequently they are in direct competition with each other. Because only two firms are competing, each firm must carefully consider how its actions will affect the other, and how its rival is likely to react. Thus, strategic considerations regarding the behaviour of competitors in this duopoly are essential in order for Qantas and Virgin to set prices. "Game theory is often used as a model to analyse the strategies of individuals or organisations with conflicting goals" (Waud and Hocking 1992, pp.-334).... ...
Price gouging is increasing the price of a product during crisis or disaster. The price is increased due to temporal increase in demand while supply remains constrained. In many jurisdictions, price gauging is widely considered as immoral and is illegal. However, from a market point of view, price gouging is a correct outcome of an efficient market.
But since " price wars" only lead to a loss in revenue for these firms
The major players of retailing industry include Coles , Franklins and 7-Eleven. Obviously, Coles and Franklins are the major competitors of 7-Eleven. Coles is a full service supermarket operating 431 stores throughout Australia, its offers
Price discrimination is practiced by a seller through giving tagging different prices to goods under different markets. Product cost details differentiates price discrimination from product differentiation (Vogel & National Bureau of Economic Research. 2009). First degree price discrimination enables the seller to know maximum price in a monopoly market. Sellers know the price every consumer is willing to pay for a good or service. First degree price discrimination is seldom possible because the seller gains revenues from consumer surplus, thus difficult to fall in loss (Corsetti & Dedola, 2003).
Firms with market power or monopolies are often seen as detrimental for customers and economic welfare. According to the neoclassical theory, the market power of monopolies and oligopolies is potentially higher than that of firms in monopolistic or perfect competition since they have to face very limited competition, if any (Ferguson and Ferguson 1994). In monopolistic or perfect competition can make supernormal profits in the short term but eventually other firms will enter the market and offer alternative products that reduce the demand for the established firm’s products (Sloman et al., 2013 p. 177). Dissimilarly, this is not the case for dominant firms or monopolies; the lack of competition allows them to set prices and make supernormal profits increasing the perception that big companies are “bad” for consumers. As shown by the graphs in Figure 1 and 2, there are substantial differences in the competitive and monopoly markets. In a competitive environment, the equilibrium is reached where demand meets supply. In a monopolistic market, thanks to the establishment of higher prices and the production of lower quantities, monopolies or dominant firms make supernormal profits; additionally, there is a deadweight loss and some consumers who were willing to pay lower prices wil...
The food and staples retailing is an increasingly competitive industry. The market giants (competitors) are Coles (owned by Wesfarmers) which has 741 stores across Australia and plans to add 70 m...
An oligopolistic market has a small number of sellers dominating market share and therefore barriers to entry are high. These sellers are highly competitive and do not act independently of each other. Access to information is limited so sellers can only speculate of their competitor’s actions. Sellers will take advantage of competitor’s price changes in order to increase market share.
Price competition among rivals is close to nil, industry participants are very competitive when it comes to product differentiation. Product offerings to satisfy consumer demands include a variety of coffee, juices, muffins, bagels, cookies, cream cheese sandwiches, soups and other miscellaneous items.