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ACCA Strategic Professional · Strategic Business Leader · Competitive forces

Two supermarket chains in a town, Alder and Birch, have similar size and cost structures. Alder announces it will match any competitor's lower price on identical items. Which statement best explains the likely effect on rivalry?

A price-matching promise signals that any price cut will be copied, which reduces the incentive for rivals to undercut and may soften price competition, though it raises concern about tacit coordination. It does not guarantee share gains or affect suppliers or substitutes.

  1. AIt signals to rivals that price cuts will be matched, which may reduce price competition but invites tacit coordination concernsCorrect
  2. BIt guarantees Alder will gain market share through lower prices
  3. CIt raises switching costs for suppliers
  4. DIt removes the threat of substitutes for groceries

Explanation

A price-matching promise tells rivals that undercutting will be pointless because it will be copied, so it can dampen price competition between similar rivals. It does not guarantee share gains and has no link to supplier switching costs or substitutes. It may raise competition-law concerns about tacit coordination.

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