Paper Products Industry Oligopoly Pricing Practices:.
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, toilet paper, and tissue paper. The firms in this industry cut prices because of pressure from Wal-Mart's aggressive low cost leadership strategy, Internet price transparency, cheap imports, and private-label brand competition. .
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.