Front Row Seats in the Market Competition.

             If you live in Cumberland County, New Jersey, Upper Deerfield Township area, it is possible that you have noticed a novel local resident – materialization of the Theory of Industrial Organization. With the recent tenant, Aldi, the preconditions for the price war have been realized and the battle is on!
             First arrived Acme, then came ShopRite, some years ago opened Wal-Mart and now entered Aldi to already overcrowded local market. Upper Deerfield Township is a rural area with about 8000 inhabitants and a volatile migratory population, because it is an agricultural area. Yes, there are settlements around the township, like Bridgeton, which has three times as many people, but there are also grocery stores in those areas and their populations should not be the influential factor for rationalizing the opening of the new store in area that already has 2 grocery chains and Wal-Mart. The latter is a small store with capacity to provide only the basic groceries, but in this situation its price strategy is still highly relevant because the distance between the stores is so miniscule that most of the time the loss of gas or time does not overweight the savings in price. To emphasize the distance between the stores, one can say that all four could have opened their businesses in the same shopping mall and split the sunk cost of building it.
             The strategic interactions between these firms have become quite fascinating and for the local folks it offers a free lesson in economics and game theory without exorbitant tuition fee.

Read more »

“Price-Matching” – Are You a Free Spy for the Competitors?

             The competition for customers is becoming more intense and prevalent - if nothing else would persuade people to shop until they drop then at least the “price-matching” clause should prevail against the competitors. Thus, buyer, be aware of unpaid labor you are providing to corporations on this tough labor market. The ecstatic consumers will be actively haggling with Customer Service without realizing how they are actually working as free market-spies for the companies, or even worse - are helping to maintain the cartel discipline, that otherwise would cost thousands of research dollars.
             In the contemporary world many companies have highly diversified product portfolios to preserve the risk averseness; consequently, it complicates the competitiveness capability on the market, especially the assurance of profit-maximizing prices. Nobody is interested of pricing at marginal cost; the objective is to earn as much profit as possible for the effort of manufacturing and vending the merchandise to the consumers. Subsequently the question raises how to monitor the prices on the market to guarantee that your company is not left in the dry or how to convince your competitors to price favorably to your business, way above your variable and fixed costs?

Read more »