Bunnings Warehouse have an offer “Find a cheaper price on one of our items elsewhere and we’ll beat it by 10%”. At first glance, this seems to be a good thing for consumers. A little game theory and you see why this offer is deceptive and misleading! If Paul’s Warehouse, a competitor, knows about this offer, they won't offer lower prices than Bunnings. So Bunnings' offer/threat to beat prices encourages Paul’s Warehouse to collude with Bunnings in keeping prices high…Unless, of course, Paul's Warehouse feel they have a realistic chance of making Bunnings go bankrupt.
Bunnings actions are typical of a large established business. They are using their power and large cash reserve (which will help them ride out difficulties) to make Paul recognise that he cannot afford to compete with them on price. The ACCC need to stop this anti-competitive behaviour immediately.
In the mean time, Caveat Emptor. Buyer beware.
2 comments:
Astute observation! I never thought of it that way.
Game theory, I love it. Since being introduced to it by Nash in "A Beautiful Mind", I've used it to explain, in formal economic terms, everything from the fact that two or more petrol stations often tend to cluster in the same location, to the proliferation of SUVs and spices, the structure of contracts, the 1987 crash, to why two people sharing a milkshake both drink faster than they'd like to, despite negotiations.
Other things I've come to see as just downright bastardly
-- Any business that gives you a discount for using them for more than one service (eg cable TV & phone and internet), reducing the competitiveness and efficiency of everything.
-- United Airlines. Why can they hold on to my $350 for 6 months, without giving me interest?
-- I'm starting to punish companies that spend an excessive amount on advertising (raising the cost of their products for me), by not buying their product. I think people are very bad consumers and negate many of the benefits of capitalism by rewarding inefficient companies, through not investigating better ways of buying things.
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"The future success of nations will not be measured in terms of the strength of their armed forces. It will be based on megabits of internet bandwidth per capita" - Thomas Friedman
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