The undisputed champion the general retail industry is Wal-Mart. At its 2001 annual shareholders’ meeting, the executives at the company stressed that they will continue to be the price leader by maintaining a close watch over competitor. Torn Coughlin, president and CEO of the Wal-Mart Stores Division, told meeting attendees that the company conducts price checks in 99.8 percent of Kmart stores and 98.7 percent of Target stores every week.
There also may be nonprice leaders in an oligopoly market. American Airlines was the first to offer frequent flier points to its passengers. All other airlines followed suit. It was also the leader in the co-branding of us name with a credit card issuer. The Citibank-American Airlines credit raid is the dominant co-branded card in the industry today. Another interesting form of nonprice competition and leadership is the practice by pharmaceutical companies of "wining and dining" physicians. Drug company sales representatives often invite doctors to lavish weekend retreats and expensive evenings out. But according to an article in the New York Times, Merck has instructed its sales representatives that they should "no longer treat doctors to free Broadway plays, weekend trips and other gifts that could he viewed as inappropriate." Other companies may soon be following suit."
COMPETING IN IMPERFECTLY COMPETITIVE MARKETS
Nonprice Competition
The key to the pricing power of firms in monopolistic competition and oligopoly is their ability to differentiate their product so they are not mere price takers who are subject to the tyranny of supply and demand. All efforts to do so are referred to in economics as nonprice competition. We have already provided examples of non-price competition in our earlier discussion of monopolistic competition. But we now present this concept in a more formal and systematic manner.
A simple, but useful definition of nonprice competition is "any effort made by firms other than a change in the price of the 'product in question' in order to influence the demand for their product." More specifically, these efforts are intended to influent e the nonprice determinants of demand. Here you will see the nonprice determinants of demand (first introduced in chapter 3) and a suggested list of nonprice variables that firms might choose to use to compete in monopolistic competition or oligopoly. Nonprice determinants of demand include any factor other than the puce of the good in question that causes the demand curve to shift. They are (1) tastes and preferences, (2) income, (3) prices of substitutes and complements, (4) number of buyers, and (5) future expectations of buyers about product price. Nonprice variables include any factor that managers can control, influence, or explicitly consider in making decisions affecting the demand for their goods and services. These variables are (1) advertising, (2) promotion, (3) location and distribution Channels,