Wednesday, 29 June 2011

Fuelling zero price transparency

No doubt my recent post bemoaning Tesco's cynical price rise and marketing gimmick regarding its Cola Zero product has been the talk of the steamie. But for those in need of a reminder, the two litre product had been retailing at around 45p, while a hefty rise a few weeks ago had increased the price by 10p or so. And more recently this had rocketed to 78p, with even an accompanying three for two offer leaving the basic price well above what it had been until relatively recently.

Not to worry though, because there are other large supermarkets and competition is intense, what with price wars and all that malarkey. Indeed, Tesco's main rival locally is Asda, and the Scotsman reported thus earlier this week in the context of the price of fuel at the forecourts:
Andy Peake, Asda's petrol director, said: "Customers shouldn't have to buy into gimmicks and promotions to benefit from cheaper petrol - no-one should have to pay a premium on food to lower the cost of fuel. Once again, Asda is leading the way in saving drivers money and, in only 72 hours, we've taken up to 5p a litre off the cost of filling up."
Obviously Asda has a rival product to Tesco's Cola Zero and its "every little helps" philosophy (although how that squares with a near doubling of the price in a few weeks is anyone's guess), thus I thought I would give that a try, bolstered by the former's ethos on petrol pricing.

Surprise, surprise, Asda's cola product had also been ratcheted up to 78p, thus identical to the Tesco price, and to add insult to injury there was no three for two offer.

Hence hardly consistent with Asda's waffle regarding fuel prices, but of course it's quite normal for the large retailers to price match like this, with the supposed intense competition between these behemoths often being little more than a misleading marketing gimmick itself.

Naturally price matching like this might be indicative of a price-fixing cartel, but one theory is that in an 'oligopoly' dominated by a small number of big players there is little incentive to compete on price. A simple theory is that if one charged cheaper prices then the others would just follow to retain their customers, while if one charged higher prices then it would lose all its customers. Thus charging higher or lower prices than competitors is pointless, so the tendency is to price match.

Thus when Asda claims to be leading the way in saving its customers money it might just as well be claiming to be leading the way so that its competitors follow.

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