Price competition key to success in Supermarket market?

The final quarter and Christmas sales reports for many of the supermarkets are now beginning to emerge. The results are generally mixed, with Morrisons showing a slight increase in profits, Tesco faring better than expected but Sainsbury's seeing a slight drop.

What is an interesting aspect of a semi-revival in the 'Big 4' supermarket's fortunes (if you include Asda) is that price has become a key factor in the fight back against the discounters like Aldi and Lidl. 'Price Watch Promises' have helped the major supermarkets reduce fears of over-pricing by offering money back if products are sold cheaper elsewhere. Morrisons' success has been directly linked to price reductions.

This offers A Level economics students some nice analytical evidence. Traditional oligopoly theory suggests that supermarkets would not compete directly on price due to the kinked demand curve and game theory. This evidence counters that.

Click here for a report on Sainsbury's, here for a report of Tesco and here for a report on Morrisons.