Unit 3 Micro: Tesco Behaving Badly - Price Anchoring

On paper, it sounds like a totally reasonable price strategy from the market leader in an oligopolistic market - after announcing their worst sales figures in nearly 20 years, Tesco’s came out with a price cut promotion “The Big Price Drop”.  The supermarket – which has pledged to spend £500 million on the high-profile promotion – has promised customers that it would reduce the price of 3,000 essential products across its stores.

But it is actually an interesting case study in imperfect information and the use of anchoring price expectations… since research by the Times found that actually Tesco is not playing fair - it increased the price of its products over August… to then “cut” them in October, but still at levels higher than they were before the August hike…

But the phrase “Big Price Drop” probably will anchor people’s price expectations and work as a stimulus for sales, given the imperfect information problem that most consumers will face.

In one example, Tesco 750g Fruit and Nut Museli went from £1.28 on August 16 to £1.89 on August 23 - before ‘dropping’ to £1.75 on September 26.

After the price drop campaign launched it was revealed that a basket of 33 staple items from Tesco now costs £58.37 – up by £1.34 since the campaign began.

Read more here.

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Unit 2 Macro: Cyclical and Structural Economic Issues Facing the UK [23 May 2012]
Oxbridge Economics: Introduction to Game Theory [21 May 2012]
Unit 3 Micro: Game Theory and Business Economics [21 May 2012]
Unit 2 Macro: The Importance of Productivity [20 May 2012]
Unit 2 Macro: Measuring Inflation in the UK [20 May 2012]
Q&A: What do we need to know about output gaps? [20 May 2012]
Unit 2 Macro: The Output Gap [20 May 2012]
Unit 1 Micro: Revision Presentation on Elasticity of Supply [16 May 2012]
Unit 1 Micro: Revision Presentation on the Price Mechanism [16 May 2012]
Unit 1 Micro: Price Elasticity of Supply [13 May 2012]
Unit 1 Micro: Income Elasticity of Demand [13 May 2012]
Unit 1 Micro: Price Elasticity of Demand [13 May 2012]
Unit 1 Micro: Public Bads [12 May 2012]
Unit 2 Macro: Revision Notes on Supply-side Policies [10 May 2012]
Unit 1 Micro: Revision Blogs on Markets and Intervention [10 May 2012]
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Unit 1 Micro: Climate Change Policies - Finding the Right Mix [30 Apr 2012]
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Unit 4 Macro: The Euro Zone Crisis (Revision) [22 Apr 2012]
Unit 3 Micro: Quiz on Business Costs and Profits [11 Apr 2012]
Unit 3 Micro: Evaluation Question on Supermarkets [11 Apr 2012]
Unit 3 Micro: Revision on Contestable Markets [8 Apr 2012]
Unit 3 Micro: Revision on Monopoly Price and Output [6 Apr 2012]
Unit 3 Micro: Monopoly and Economic Welfare [6 Apr 2012]
Unit 3 Micro: Revision on Scale Economies and MES [5 Apr 2012]
Unit 1 Micro: Revision on Price Elasticity of Supply [5 Apr 2012]
Unit 1 Micro: Revision on Producer Surplus [4 Apr 2012]
Unit 1 Micro: Revision on Producer Subsidies [2 Apr 2012]
Unit 3 Micro: Revision on Scale Economies, Technology and Prices [1 Apr 2012]
Unit 1 Micro: Nottingham introduces workplace parking tax [1 Apr 2012]
Unit 1 Micro: Revision on Maximum Rents in Housing [1 Apr 2012]
Unit 3 Micro: Revision on Fixed and Variable Costs [31 Mar 2012]
Unit 1 Micro: Brazilian coffee buffer stock hit by falling prices [29 Mar 2012]
Unit 3 Micro: EU Imposes Further Price Cap on Mobile Phone Companies [29 Mar 2012]
Life in the Slow Lane - UK Growth in 2011 Lags the Euro Area [28 Mar 2012]
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Unit 1 Micro: Government launches New Buy Loan Guarantee Scheme [12 Mar 2012]
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Unit 1 Micro: Breaking Down the Cost of Gas [4 Mar 2012]
Unit 3 Micro: Volkswagen targets growth markets [25 Feb 2012]
Unit 3 Micro: Low Pay in Supermarkets [24 Feb 2012]
The Economics of Climate Change - Stern 5 Years On [21 Feb 2012]
Unit 2 Macro: Focus on China - Inflation [26 Jan 2012]
Unit 4 Macro: Focus on India - World’s Cheapest Computer [26 Jan 2012]
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Unit 3 Micro: Unilever hit by rising costs [6 Nov 2011]
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Unit 3 Micro: Economies of Scale and the Kinect [31 Oct 2011]
Unit 1 Micro: Google Maps to Charge for Usage [31 Oct 2011]
Unit 3 Micro: Examples of Price Discrimination in Action [31 Oct 2011]
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Unit 1 Micro: Exercise on Equilibrium Market Prices [27 Sep 2011]
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Unit 1 Micro: Exercise on Market Supply [26 Sep 2011]
Unit 1 Micro: Exercise on Market Demand [25 Sep 2011]
Unit 4 Macro: Greek Economy at Default’s Door [25 Sep 2011]
Unit 4 Macro: Bangladesh and Comparative Advantage in Textiles [19 Sep 2011]
Unit 3 Micro: Fixed and Variable Costs [18 Sep 2011]
Unit 2 Macro: Economic Growth and Inequality [14 Sep 2011]
Unit 2 Macro: Value Added in Production and GDP [11 Sep 2011]
Unit 3 Micro: Short Run Costs of Production [6 Sep 2011]
NHS spending good, private provision bad? [5 Sep 2011]
Starter Activity: Health Economics [1 Sep 2011]
Unit 4 Macro: Baltic Dry Index and Global Weakening [19 Aug 2011]
Unit 1 Micro: The Price of Football [2 Aug 2011]
Unit 1 Micro: Cotton Prices and the Retail Price of Clothing [13 Jul 2011]
Unit 1 Micro: Economics of Volatile Corn Prices [12 Jul 2011]
Unit 4 Macro: Dangers of High Inflation [11 Jul 2011]
Unit 3 Micro: Oligopsony - Dairy Losses Drive Farmers from the Fields [10 Jul 2011]
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AQA Macro: Remember to revise inflation [25 May 2011]
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AS Macro Key Term: Inflation [24 May 2011]
A2 Micro: Price Discrimination [19 May 2011]
Unit 3 Micro: Monopsony Power in Markets [19 May 2011]
A2 Micro: The Importance of Profit [19 May 2011]
A2 Micro: High and Low Marginal Cost Products [19 May 2011]
A2 Micro: Examples of Price Discrimination [19 May 2011]
Unit 3 Micro: Perfect Competition [19 May 2011]
A2 Micro: Outsourcing [18 May 2011]

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