While there is a degree of differentiation between major grocery chains like Albertsons and Kroger, theregular offering of sale prices by both firms for many of their products provides evidence that these firmsengage in price competition. For markets where Albertsons and Kroger are the dominant grocers, thissuggests that these two stores simultaneously announce one of two prices for a given product: a regularprice or a sale price. Suppose that when one firm announces the sale price and the other announces theregular price for a particular product, the firm announcing the sale price attracts 1000 extra customers toearn a profit of $5000, compared to the $3000 earned by the firm announcing the regular price. Whenboth firms announced the sale price, the two firms split the market equally (each getting an extra 500customers) to earn profits of $2000 each. When both firms announced the regular price, each companyattracts only its 1500 loyal customers and the firms each earned $4500 in profits. If you were in charge ofpricing at one of these firms, would you have a clear-cut pricing strategy? If so, explain why if not explainwhy not and propose A mechanism that might solve your dilemma. (Hint: unlike Walmart, neither of thesetwo firms guarantees “Everyday low prices”.)
While there is a degree of differentiation between major grocery chains like Albertsons and Kroger, the
regular offering of sale prices by both firms for many of their products provides evidence that these firms
engage in price competition. For markets where Albertsons and Kroger are the dominant grocers, this
suggests that these two stores simultaneously announce one of two prices for a given product: a regular
price or a sale price. Suppose that when one firm announces the sale price and the other announces the
regular price for a particular product, the firm announcing the sale price attracts 1000 extra customers to
earn a profit of $5000, compared to the $3000 earned by the firm announcing the regular price. When
both firms announced the sale price, the two firms split the market equally (each getting an extra 500
customers) to earn profits of $2000 each. When both firms announced the regular price, each company
attracts only its 1500 loyal customers and the firms each earned $4500 in profits. If you were in charge of
pricing at one of these firms, would you have a clear-cut pricing strategy? If so, explain why if not explain
why not and propose A mechanism that might solve your dilemma. (Hint: unlike Walmart, neither of these
two firms guarantees “Everyday low prices”.)
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