Price Transparency and Oligopolies

Do you know that Price Transparency can be a double edged sword and can lead to tacit collusion between oligopolies?

“The problem with a promise to match a competitor’s price is that it will discourage the competitor from cutting its price in the first place…. If the competitor’s emporium across the road boasted a price promise, I might not bother” – attached link.

In Tim Harford’s scenario, oligopolies are deterred to start a price war and silently encouraged to keep price high via such silent implied tactics.

In airline’s context, isn’t it the very same that we observe from the behaviours of the airlines, i.e some Low Cost Carriers in Singapore?

Although some airlines are telling consumers explicitly that they are going to match every price difference that consumer’s observe from the internet, do note that the implicit message is actually towards their competitors: “don’t bother cutting your airfare.. Because we are going to match you in every way. Not only we will match you, we will even offer a lower rate to poach your customers.. So don’t you ever dare to lower your price.”

In these cases, the other airlines are forced to adopt a higher or equal price strategy with the airline that started this matching strategy to avoid a price war.

Hope that I have shared some good insights with you guys. Have an awesome weekend ahead!