Impact Pricing Blog

A Price Signaling Example?

First, let me say, “I don’t know.”  What you are about to read is speculation.  But, even if my interpretation is incorrect, it’s still a fascinating example.  

It is illegal for companies to collude in price.  You may not call a competitor and discuss price with them.  Just don’t do it.  But, implicit collusion may be legal.  That simply means competitors seem to move prices up or down in concert with each other without discussing price.  It’s often done through signaling.  

We’ve all heard that Tesla reduced their prices.  Demand is still high, so it’s not clear why.  Maybe they wanted to steal market share from competitors, but that seems challenging when they are already making as many as they can. Maybe they want to create a longer backlog to keep competitors from getting a strong foothold. Maybe they want to entice other manufacturers to lower their prices to take profits out of the industry so their competitors have less money to invest. “I don’t know.”  

However, I LOVED what Oliver Blume, the CEO of VW, said.  “VW will not engage in a price war with its American competitor.”  

Now, imagine this is a conversation between Elon Musk and Oliver Blume.  Musk said, “let’s lower prices.”  Blume said, “let’s not.”  The negotiation will continue.  What may happen next is that Elon decides the price decrease didn’t do what it wanted and raises the price back up.  In this case, Oliver Blume’s message was well received.  Or, Blume may give up and lower VW’s electric car prices.  Think of this as a negotiation between the two companies. 

However, if either of those two things happens in the near future, these two announcements were likely two CEOs communicating with each other (legally?) about price.  If both companies hold to their announced pricing strategies, then maybe they meant what they said.  

Let me reiterate, “I don’t know.”  That’s the whole point behind implicit collusion.  It’s a fascinating example nonetheless.  

***  After I wrote the above, Ford announced it is lowering prices on electric vehicles.  Ford is following Tesla’s lead.  That makes it even more likely that VW will end up lowering their prices.  In this case, the implicit collusion is in the consumer’s favor.  


Now, go make an impact!


Impact Pricing - Selling Value Book V2

Tags: price, pricing

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