Introduction The online price war, which is caused by unfair practices in China, has been a serious problem in recent years. Millions of retailers have participated in China’s online economy since 2000 due to the huge market and profit. According to the statistic in 2008, China’s online retail market was worth USD 18.8 billion, with a sustained stable growth rate of over 100 percent each year (Gong et al., 2013). Two wide-ranging online price wars happened last year. The majority of large-scale online retailers, such as alibaba, Jingdong, Suning and Gome were involved. A variety of economic issues have been caused by online price wars, which is troubling for the market economy, owning to the frequent unfair practices. It has also led to deleterious effects on social sustainability, such as the aggravated unemployment issue. This report will identify the effects and implications of online price war, focusing on China, analyze the causes and suggest possible solutions. Impacts The unfair online price war may lead to grave economic issues. Firstly, profit margins will be generally reduced if online retailers regard price war as a …show more content…
Price plays a dominant role in online customers’ WTP, namely, willingness-to-pay (Wu and Ayala, 2013). Compared to the traditional selling, the uncertainty of online customers is more obvious, owing to customer psychology of risk reversion. It has been definitely indicated that buyers believe that price is proportional to the risk of consumption (Wu and Ayala, 2013). Due to the lack of access to getting enough information about products, especially quality, customers always tend to choose products with lower price, which is the only factor they could compare between different online retailers. Thus, most of the customers keep positive mind towards the price war, owing to less cost, which is the original motivation for online retailers to start a price
Due to the fact that Best Buy is non-collusive, they face a kinked demand curve that ultimately determines the firm’s relative market share. The demand curve consists of an elastic and inelastic portion. Oligopolies avoid both portions, where in the elastic portion, competitors keep prices low to steal customers, and the inelastic portion where price war occurs since competitors also lower prices, resulting in no gain in demand.
When the price war finally came, Steinberg used an unusual tactic in lieu of slashing prices. It offered a rebate for every dollar spent that could be applied to the customer's next order in the store. This was accompanied by a new focus on customer service that required several hundred new employees. Two of the other major firms followed suit immediately, in a competitive reaction, while Hudon and Deaudelin implemented the price cutting measures that were proven by the pricing experiment. These new prices were enforced with a strong advertising campaign. This tactic not only offered the smallest reduction of margin among the competitors, but Hudon and Deaudelin was actually the only firm to gain market share from the 14 week price war. These results were a vindication for economists and proved the value of economic theory in business
Key Issues The growing popularity of online retailing is attracting competition from traditional and online multi-retailers such as Wal-Mart and Amazon, which are gaining considerable market shares in many of the product segments included in the specialty retail sector. Currently, the majority of revenue is generated by store sales, but online sales from the stores’ websites are increasing. With the US dollar getting weaker, international sales from these US based websites are increasing too. This creates a significant positive outlook for the large incumbent players but also acts as a significant barrier of entry for new players.
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.
Krishnamurthy, S. (2004). A comparative analysis of eBay and Amazon [PDF file]. Retrieved from http://faculty.washington.edu/sandeep/d/amazonebay.pdf
Online retailing in China, dubbed ‘e-tailing’, has doubled every year since 2003. By 2020 the size of China’s online retail market is predicted to reach up to US$650 billion, exceeding the combined value of online markets in the USA, UK, Japan, German and France. With over 590 million internet users, China boasts the world’s largest online population - more than the US and Japan combined – and still growing at almost 10 per cent per annum.
Price can sometimes be an indicator of quality with a higher price indicating higher quality (Mowen & Minor, 1998). Consumers perceive that a higher price can be attributed to the higher cost of quality control. Some consumers are highly price sensitive (elastic demand), whereby a high price may shift consumers to competitive brands (Mowen & Minor, 1998). Therefore, price can have a positive or negative influence on customers.
Pricing is an important aspect of every business. Chief Financial Officer’s (CFO) use pricing to create financial projections, establish a break-even point, and calculate profit and loss margins (Power Point, 2005). It is the only element in the marketing mix that produces revenue. Price is also one of the most flexible elements of the marketing mix as it can be changed very quickly. This is usually done to beat competitor prices in an attempt to fix the product’s market value position very low (Anderson & Bailey, 1998). After all, high prices make it difficult to become the market share leader. The leading US retailer, Wal-Mart, is an expert at low product pricing as evident in 2004 with $250 billion dollars in sales to their 138 million weekly shoppers. However, they are also responsible for reducing prices so low that it drives specialty stores out of business. This is the effect Wal-mart has had on many toy stores and has almost closed the doors of the famous toy store Toys “R” Us Inc.
This might appear obvious to many shoppers. But I believe multitudes of people purchase items without ever considering what they buy could be found elsewhere for less money. Even I am guilty of assuming that Walmart has the best prices on everything. If I take a small amount of time to search for a specific coffee maker, I can find the large chain store 's prices such as Walmart, Target, Best Buy, and Sears, along with other smaller retailers. (In some cases smaller stores ' prices are lower.) Many stores price match, so if I prefer to shop at Walmart because I live close to one, I can have them match the competing retailers lower price. Also, many retailers provide free shipping on online orders totaling a certain amount. Therefore, if physically visiting the store with the lowest prices is not feasible, shoppers can order items online for no extra charge. However, ordering from brick-and-mortar stores—physically or online—is not always the best option. Websites such as Amazon and eBay have millions of items from multiple sellers. Sellers will compete with each other for the lowest price, often providing shoppers with a price lower than those of larger stores. Regardless of how and where you purchase your items, taking time to shop around is a wise
In the business world, price discrimination can be detrimental to small businesses trying to compete with larger organizations pricing. In the 1930s congress was worried about large multimarket firms using predatory marketing techniques in certain markets to bankrupt smaller firms in the area. In response, Congress enacted the Robinson-Patman act which prohibits larger forms conducting pricing strategies that contribute towards becoming a monopoly by getting rid of their rivals, the smaller family owned stores. With this measure in place the smaller mom and pop stores are better protected from the larger chains and can help to contribute more to the local economy. A downside of the act from a consumer standpoint is that the larger chain firm
Now, after having explained the various types of price discrimination, we can tackle the question of whether firms should price discriminate or not. This can be done by analyzing the benefits and drawbacks of price discrimination on firms as well as on consumers and society. So, first of all, as already mentioned above, firms should price discriminate in order to increase their revenue and consequently profits as price discrimination allows them to capture consumer surplus. In addition, first price discrimination (perfect price discrimination) brings economic efficiency since it eliminates deadweight loss which is "the reduction in consumer's surplus and producer's surplus that results when the output of a product is restricted to less than the optimum efficient level that would prevail under perfect competition" (Davies, Lowes and Pass, 2000).
Although consumers usually do not have to spend money on searching, it is still time-consuming for most buyers. Some consumers are sophisticated users who use shopbots to find the cheapest shop quickly. In contrast, others who do not know how to search efficiently or do not have enough time may buy from the first site they find. Therefore for those consumers who are not familiar with internet shopping, there are still big search costs. Switching costs cannot be neglected either in such markets.
Online and in-store shopping differentiates in various ways. However, they both are convenient ways to shop. Recently, online shopping has been most convenient for me, but I enjoy both ways of shopping. I believe that shopping preferences change depending on a person’s situation. I noticed that many people are starting to prefer online shopping more than in-store shopping.
E-commerce application is a platform where there is buying and selling of products and services which are done by businesses and consumers via an electronic medium
Going to the mall is like being at a zoo. Herds of inconsiderate teenagers crowd the walkways, girls fight over the best pair of shoes, and the merchandise is thrown all over the place. Imagine being able to have a stress free day of shopping without annoying kids running around and the ease of looking at perfect displays that have not been touched by the grimy hands of children. If you could eliminate the younger population from the mall, shopping would be much easier for everyone. Parents can enjoy their day out, girls-day won’t be interrupted by kids running a muck in the store, the employees jobs will be easier by not having to fix the displays that were messed up by children, and the amount of merchandise stolen will decrease if the younger population sticks to online shopping! Shopping