Price Matching Policy - TESCO vs Carrefour

Price Matching Policy - TESCO vs Carrefour

Hypermarket is act as an oligopoly. An oligopoly is a market dominated by a few large suppliers. The degree of market concentration is very high (i.e. a large % of the market is taken up by the leading firms). Firms within an oligopoly produce branded products for which advertising and marketing is an important feature of competition within such markets. There are also barriers to entry.

The Distinguishing Characteristics of Oligopoly are the number of firms is small enough that actions by any individual firm in the industry on price, output, product style or quality, introduction of new models, and term of sale have perceptible impact on sales of other firms in the industry. In Malaysia supermarket, there are four big firms: Tesco, Carrefour, Giant, and Jusco. · The firms sell homogeneous or heterogeneous products. The product or service sold in Malaysia supermarket may be differentiated by promotion and advertisement, such as soft drinks, cereals, and athletic shoes, or relatively undifferentiated, such as an agricultural product.· The distinctive feature of oligopoly is the easily recognizable interdependence among the firms in the industry. This means that each firm must take into account the likely reactions of other firms in the market when making pricing and investment decisions. To gain more market share, both price competition and non-price competition are notified apparently in Malaysia supermarket industry.

There are many types of pricing strategy the firms in oligopoly might use. Tesco’s price strategy are more focus on Tesco’s Low Price Guarantee (Price-Beating Guarantee and Price-Matching Guarantee), and Every Day Low Price strategy (EDLP).To understand the reason why Malaysia supermarket uses those price strategies, we might use the kinked demand curve in oligopoly market to explain. Sometimes when an oligopolies cuts its prices, competitors quickly feel the decline in their sales and are forced to match the price reduction. Alternatively, if one firm raises its prices, competitors rapidly gain customers by maintaining their original prices and hence have little or no motivation to match a price increase. For many goods sold by supermarkets, the demand is inelastic and a change in price will not bring about an increase in the total sales of the product. In such conditions any supermarket can increase its share of the total by cutting its price but this is likely to cause a response by other supermarkets also cutting their price. Such competition will not increase total sales but will cut profits of all the multiples. Under these conditions all the multiples can increase their profits by reaching a tacit agreement as to the optimal, or near optimal, price level and keep to that level for fear of retaliation if they break rank. Price leadership is one way of signaling the appropriate price level.

To consumers, it might be a bad news regarding to lose in buying power. Consumers will no longer able to make a right choice in buying process. All now depend to the oligopolies. They set the price and as a buyer you not have much choice. In what matters, compulsory goods still needed. As long as they not raise its prices and the others will follow to match, we as a consumer will remain safe.