Affects of price transparency
Price transparency affects both retailers and manufacturers. For retailers, it means customers will have a much better sense of a product’s whole sale costs. That’s already changing the way car dealerships operate. Car buyers routinely enter the showroom armed with the detailed breakdowns of wholesale auto prices that have been downloaded for free from any of a dozen Web sites. For manufacturers, price transparency means consumers will be better able to infer a product’s manufacturing costs, making it much harder to impose large price premiums. As price transparency increases, so will the problems it causes for companies.
These problems usually take three forms. First, cost transparency severely impairs a seller’s ability to obtain high margins, e. g. British Airways. Secondly, cost transparency weakens customer loyalty to brands, e. g Procter and Gamble. Thirdly, price transparency can damage companies’ reputations by creating perceptions of price unfairness. When costs become clearer, consumers may come to believe that sellers of their favourite brands have been artificially increasing the retail price to give the company greater profits. This perception often leads to enduring distrust, and companies can find it difficult to win back their old customers.
Conclusion In general, price transparency gives scope for arbitrage to break down price discrimination within the European Union. The extent to which this occurs will depend on the nature of the product in question, the organisation of the industry, and the nature of vertical linkages between buyers and sellers. Price Transparency is driven by four rapidly developing pressures: The move to a single currency, the growth of eCommerce, the increasing effectiveness of competition policy at both EU and national level, for example VW-Audi, the completion of the Single Market by liberalising and privatising telecommunications and energy companies.
Since the introduction of the Euro, prices have changed around Europe, although prices in the Euro currency countries remain surprisingly varied. It is sometimes argued that differences on small items of fast moving consumer goods are not serious because consumers are unlikely to travel internationally just to buy a tube of toothpaste for example. Differences in indirect taxes (VAT and other indirect taxes) explain to some degree these prices gaps, certainly for cars, in the Eurozone. The remaining part of these price gaps is caused by the price discrimination by manufactures.
In the UK, price reductions resulting from the pressures of transparency are doubly interesting, as they show that sterling currency does not insulate UK businesses from its effects. Price transparency affects both retailers and manufacturers. For retailers, it means customers will have a much better sense of a product’s whole sale costs. For manufacturers, price transparency means consumers will be better able to infer a product’s manufacturing costs, making it much harder to impose large price premiums.