Glamor Economics

Chapter 71

Chapter 10 Section 5 The double-edged sword stabbing at the two competing parties—the price war
Price war refers to the strategy that producers adopt price reduction sales in order to achieve the purpose of dumping goods and occupying the market.Price wars are not uncommon in our lives.

In mid-February 2009, Gree, Haier, Midea, and Mitsubishi, four major air-conditioning manufacturers, successively signed procurement contracts with Gome with a total purchase order amounting to 2 billion yuan.Haier alone signed a purchase order of 100 billion yuan with Gome, providing the latter with 16 units of best-selling special models.At the same time, the products of the four major manufacturers have also successfully crushed other air-conditioning manufacturers, becoming the "Four King Kong" with a very large sales volume in the market.

In addition to the air conditioner war, people will also see the refrigerator war, color TV war, and microwave oven war in full swing. It seems that each product can spark a little bit of war.In today's society, with a developed market economy and expanded production scale, a situation of product surplus has gradually appeared on the market, that is, "commodities are abundant and the supply of goods is abundant".For consumers, this news means that they have more opportunities to choose products; for operators, it reminds them that they have to compete fiercely in terms of product variety, service and price.Cutting prices and fighting price wars have become the best choice for many brand products to occupy the market.

The image of Galanz as a "price butcher" is deeply rooted in the hearts of the people, but it has also been criticized by the industry, especially its process of occupying the microwave oven market is full of "bloody".

According to reports, in the nearly 30 years of development, Galanz has been competing for the market share of microwave ovens with a low-price strategy. The "price butcher knife" not only eliminated a large number of competitors, occupied domestic and foreign markets, and established the industry leader. This directly led to a substantial shrinkage of industry profits, and fierce competition in the microwave oven market.At present, after several rounds of price “shuffling”, the domestic microwave oven market has gradually been replaced by the wild goose array model of Midea, Panasonic, LG, Haier and other big brands led by Galanz. Oligarchic status has also been further established.

Price competition is a "double-edged sword."Under normal circumstances, reasonable and moderate price reduction competition is conducive to encouraging the advanced and eliminating the backward, prompting enterprises to strengthen management, reduce costs, adopt advanced technologies, improve the quality and technical level of laborers, etc., and bring long-term benefits to consumers. benefits.At the same time, the price level after the price reduction is still higher than the average cost level, making the advanced enterprises in the industry profitable.However, if the price reduction competition is used improperly, there will be excessive price reduction, and vicious price reduction competition will bring bad consequences.A basic feature of excessive price reduction or vicious price reduction is that regardless of cost, the price level in the industry is lower than the average cost. Most enterprises in the industry are unprofitable or even suffer serious losses. This is tantamount to suicide by drinking poison to quench thirst.

[links to related words]

Unfair competition Unfair competition refers to the behavior of business operators who violate the provisions of the Anti-Unfair Competition Law, damage the legitimate rights and interests of other business operators, and disrupt the social and economic order.The subject of unfair competition is the operator.

According to the "Anti-Unfair Competition Law": "The business operators referred to in this law refer to legal persons, other economic organizations and individuals engaged in commodity business or profit-making services." The object of unfair competition damage is other business operators. legitimate rights and interests, as well as the normal social and economic order.For example, a price war is an act of unfair competition.

Price leadership system After fierce market competition, a super oligopoly has emerged in the market, but it cannot eliminate other competitors. At this time, the pricing method of price leadership system will be adopted.In the price leadership system, one oligarch sets the price first, and other oligarchs follow.The super oligarch who can set the price first is called the price leader.This kind of leader is neither self-proclaimed nor appointed by the government, but is produced in price competition.

Price discrimination means that when a company sells identical or differentiated products of the same kind, it charges different prices to different customers.Since these prices do not fully reflect the true value of their products, price discrimination employs a non-linear pricing strategy.As a theory, price discrimination belongs to the category of pricing strategy, without any praise or criticism.

Precautionary pricing is to prevent potential entrants from entering, and it is a way of pricing ahead of time.The level of precautionary pricing depends on the level of entry barriers that potential entrants encounter when entering.If a certain industry cannot enter at all, such as a company monopolizing resources in a certain industry, precautionary pricing does not have to be adopted.If there is no barrier to entry at all in an industry and any company can enter freely, precautionary pricing will be lower.

(End of this chapter)