The End of a Price War for Market Share and New Beginning of Implicit Collusion

After many years of a battle over market share, the industry giants in the disposable paper goods industry have decided it is time to stop undercutting one another and to begin cooperating to collectively charge a higher price for their goods. This industry consists of large firms including Procter and Gamble (P&G), Wal-Mart, Georgia-Pacific Corp, and Kimberly-Clark Corp. These firms claim that their costs of production have rose too much and it is time for consumers to share the burden. However, past the reluctant-sounding public-relations facade is the fact that this demonstrates a return to pricing power for the oligopoly of firms in this industry. Kimberly-Clark facilitated implicit collusion to ensure that all firms could charge a higher price to get more profit, and all the firms are proving to consent.

For the past several years, the firms in this industry battled for the business of the consumer. Prices charged to consumers fell since 2000 on most of these types of goods in this industry. These goods include everyday disposable paper items such as paper towels,

Now, this month (April 2004) Georgia-Pacific announced a price increase of its products from six to nine percent for toilet paper, tissue, and paper towels. It is actually the last firm to increase prices such as these. It is a response to Kimberly-Clark’s announcement of higher prices last month, which in turn, is a response to P&G’s increased prices from a month before then. Industry analysts suspect that even Wal-Mart is going to permit the increased prices by increasing a few of its costs on similar goods.

This is why in the paper products industry, the firms collude implicitly. They ensure that the collusion does not appear too obvious to be illegal. This is why their price increases are formally and separately announced – to signal to the competition that it is acceptable to for them to increase their prices. First, in January 2004 Kimberly-Clark’s CEO vocalized his willingness to increase prices. The next month, P&G announced their price increase. Then, the next month Kimberly-Clark announced higher prices, followed by Georgia-Pacific the month after. Wal-Mart, whom operates totally on a low-cost, low-price strategy, might disrupt this process by seizing the opportunity to grab more market

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