A strategic game between Tesco and Asda in the UK


Price Wars in the UK Grocery Market:

Price wars are a phenomenon that occurs across companies in various industries across the global economic system. In an oligopolistic market structure, players closely monitor the prices of each player and react to any price drop. This article seeks to explore the strategic business methods used in the British oligopoly of groceries and determine its effects on the economy using a theoretical model of gambling. I will conclude that such price wars would scare off independent retailers, leading to a consolidated industry dominated by no more than four British grocery chains.

By definition, price wars indicate a state of intense competitive rivalry accompanied by a multilateral set of price reductions. In the short term, the price war can be "good" for consumers because of a lower price structure in existing products and "bad" for competing companies due to lower margins beneficiaries and potential threats to its survival. In the long run, the dominant firms in the industry could benefit because marginalized small businesses are unable to compete and close. However, this could be bad for consumers since the remaining companies could agree to raise prices, possibly in collusion even beyond the price set before the price war.

Major Players – Tesco and Asda:

Tesco and Asda both used similar discounting strategies to gain market share. Prices in both stores are about the same as in the spring of 2005. Tesco's market share in 2002 was 27.1% and Asda's market share was 16.9%, according to a magazine study. BusinessWeek. Sainsbury, an upscale grocery chain that, in 1995, was the UK's largest grocery chain, took third place with 16.1%. Safeway has a small market share with a 12.4% market share. The dominant players in this market are Tesco and Asda, both of whom are committed to reducing their prices – especially with non-food products. Tesco and Asda aim to open 10 to 12 new stores a year in the United States.

Tesco was founded in 1924 in London by Sir Jack Cohen with the recipes of the services of the army at the First World War. In 2005, the company is a grocery and international distribution chain with 2,365 stores worldwide and employing approximately 367,000 people. Tesco has seen steady growth in profits and sales over the last five years up to 2005, and ten million visits a week are being made by its customers in its stores. Tesco has four key activities; their main business in the UK, their non-food business, retail services and international operations. Tesco's main market is in the United States.

Asda was acquired by Wal-Mart in June 1999. There are 265 supercentres and 19 depots across the UK and approximately 122,000 employees in the overall operations of the company. Grocer magazine named Asda Britain's "best supermarket" five years in a row until 2005. Since 1999, there have been price reductions of more than $ 915 million (adjusted from the pound sterling to U.S. dollars). Growth in non-food items exceeded expectations as 5,000 new general merchandise lines have been added since 2002, including specialty items in pharmacies, opticians, jewelery and photographic services

The Game – Hawk-Dove. It seems that the two players in the British grocery market are engaged in a strategic game similar to the Hawk-Dove game, designed and named by Maynard Smith and Price (1976). This game has been a very important tool for understanding the role of aggression among the actors of the economic systems. The Hawk-Dove game has been studied in many scenarios across various academic disciplines and has played a role in the field of evolutionary game theory.

The idea is that the Hawk is a very aggressive player. The dove is a pacifist, never fighting for this same resource. The goal of this game is to choose between the two strategies to determine how to share a common resource.

Other assumptions in the Hawk-Dove game are as follows: (1) the fights between Hawks are brutal; (2) the loser is the first to suffer harm; and (3) the winner takes sole possession of the resource. Each hawk has a 50% chance of winning on another hawk. The dove withdraws in any conflict with a hawk and thus loses forever. When two doves interact, they share the resource.

This game has two purely strategic Nash equilibria, which determine the dominant strategy: one chooses to be a hawk and the other chooses to be a dove. There is also a mixed strategy equilibrium, in which each animal chooses Hawk with a probability of one-third and Dove with a two-thirds probability. This is indicative of a distribution of strategies in a population in which Hawk is played a third of the time and Dove is played two thirds of the time. In other words, playing exclusively at Hawk or Dove, or in any other proportion, would be evolutionarily unstable.

In reality, Tesco and Asda both played the Hawk strategy. Why would this happen when it's not a balance of the game and, in fact, is the most suboptimal result? It is possible that neither of the two companies know that they are playing this game. A more likely explanation is that companies are both willing to sacrifice short-term profits in order to be the actors Dominants of the UK food industry in the long run. Public records show that Tesco executives consider Asda a big threat, even though Tesco's quarterly sales are 1.5 times higher than Asda's. Tesco is highly concentrated in this price war environment, and the company has even posted on its shelves the listing prices of its products vis-à-vis Asda and Boots, a chain of drugs in the UK United

Tesco remains the market leader in terms of market share and net profit in the United Kingdom. In addition, the company is pursuing a unique marketing strategy based on a rich database of ten million customers, customer panels and mailed questionnaires to enable consumers to redefine Tesco to best meet the needs of customers. their needs and expectations. 19659002] Asda has grown by 10% a year, meanwhile, and is a viable competitor for Tesco. Another player, Sainsbury, has been losing market share since 1995 due to the failure to run a high-priced alternative. Safeway, still a major player and family name in the UK food market, filed for bankruptcy in 2005 and then merged with William Morrison. These four actors globally represent 72.5% of the industry, in 2005.

Final Thoughts:

Price wars in the oligopolistic market of the British grocery store have affected more than Tesco and Asda . Both companies played a strategic Hawk-Dove game, in which both players play the role of Hawks. The resulting stock has hurt the business prospects of independent retailers, such as local grocery stores and food stores, most of which have closed their doors. In addition, local businesses across the entire UK grocery store value chain, such as suppliers and distributors, have also been negatively impacted.

Tesco and Asda are following this strategy since Asda entered the market in June 1999. Will likely result in further consolidation within the grocery industry in the United Kingdom. United, with no more than four dominant players in this field – with the largest market share in Tesco and Asda.


Source by David J Stone

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