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.
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
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
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.
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...
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...
Internal rivalry described by Besanko, Dranove, Shanley and Schaefer (2007) refers to the "jockeying for share by firms within a market". In the Australian automotive industry, there are a number of rivals competing for the same consumer outcome of purchasing their products. A typical example of the rivalry would be Holden versus Ford. There are a number of international rivals that have penetrated the industry also seeking a share in sales such as Volkswagen, Renault, BMW and Mercedes-Benz. Price competition is a major influence in the industry, and Besanko et al. (2007) outlines a number of conditions that influence price competition, such as: many sellers in the market; Industry is stagnant or declining; firms have different costs. Price competition is also impacted by the consumers needs. For example, a consumer generally regards the European brands BMW and Merce...
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.
But since " price wars" only lead to a loss in revenue for these firms
The producer does not need to reduce the prices as they are already providing them a competitive advantage in the market. Restructuring of the pricing strategy can be done if its competitors increase or decrease the prices of their products. Place/distribution Where
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
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...
As the price decreases, the company is able to utilize the funds saved in other areas of their business. A company that utilizes economies of scale to their advantage could be Procter and Gamble. The company owns many brands in the area of consumer products and its extensive distribution network allows the company to reach billions of customers. Since they own numerous different brands that
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 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).