The Price Skirmish—A Distinctive Pattern of Competitive Behavior

Cassady Ralph Jr. , “Price Warfare and Armed Conflict: A Comparative Analysis,” Michigan Business Review, Nov. 1956, pp. 1–5; “The New York Department Store Price War of 1951: A Microeconomic Analysis,” The Journal of Marketing, July 1957, pp. 3–11; “Taxicab Rate War: Counterpart of International Conflict,” Journal of Conflict Resolution, Dec. 1957, pp. 364–368; (with Brown W. F. ) “Exclusionary Tactics in American Business Competition: An Historical Analysis,” U.C.L.A. Law Review, Jan. 1961, pp. 88–134; Price Warfare in Business Competition: A Study of Abnormal Competitive Behavior (East Lansing, Michigan: Michigan State University, Bureau of Business and Economic Research, Occasional Paper No. 11, 1963); “Price Warfare—A Form of Business Rivalry,” in Cox Alderson Shapiro , eds., Theory in Marketing (2nd ed., Homewood, Ill.: Richard D. Irwin, Inc., 1964).

Cassady , Price Warfare in Business Competition …, pp. 40–48.

“Skirmish” is defined as: “1. A slight fight in war, usually incidental to larger movements… . 2. A slight contest; a brisk preliminary conflict … A tentative movement, action, or effort; a flourish. Syn.–See encounter.” Webster's New International Dictionary (2nd ed., unabridged).

See, for example, Cassady , Price Warfare in Business Competition …, pp. 25–27.

“Fruit and Vegetables Given Away in Price War on Upper Broadway,” New York Times, Wednesday, March 11, 1953, Pt. II, p. 31.

Competitors usually do not challenge a grand opening special offering in price and/or kind on the part of a new entrant. However, some invaders do not seem to be satisfied with one grand opening—according to one informed industry man, some new outlets may schedule several promotional “openings” in an attempt to woo customers. Such competitive behavior almost surely will bring on a reaction by an aggressive competitor in the form of meeting or beating the aggressor's low-price specials.

If a station blanks out its signs it might be able to get away with a price cut without reactions by others, because a price cut without publicity is a less sharp competitive weapon than one accompanied by price signs.

Data for this section were supplied by a particularly well-informed member of the trade.

See California Unfair Practice (“cost-floor”) Act, CCH Trade Regulation Reporter, Vol. IV, Par. 30630.07 and 30630.44A (1961).

According to a reliable member of the trade, major-company salesmen are instructed to watch the price signs of independents and note those which are blanked out. The blanking out of the sign must be interpreted in the light of what has been going on in the market. Thus: If prices have been depressed, blanking out of a sign indicates that an attempt will be made to move up, but when prices have been at normal levels, it possibly means that a reduction is in the offing.

According to the Hotel Gazette (Oct. 16, 1954, p. 3), the rate war came “… at a time when the resort town usually experiences its worst tourist slump.”

Basically, the conflict appears to have been precipitated by the reaction of the U.S. 1 Motel Association to the initial reductions. However, the Miami Herald reported (Oct. 5, 1954, p. 1): “The price war also has the backing of the Chamber of Commerce, the Miami Hotel Association, AAA and similar groups… .”

For the relationship between publicity and price elasticity, see Cassady , Competition and Price Making in Food Retailing (New York: The Ronald Press, 1962), pp. 30–31. The basic cause of this phenomenon is that consumers are better informed re bargain offerings when a price change is advertised and, therefore, tend to react more promptly and in greater numbers than when such changes are not publicized.

Ordinance No. 4858 of the City of Miami, dated Sept. 15, 1953, was purportedly designed to prevent misleading quotations of rates and frauds against “the unwary traveler.” Section 2 made it unlawful to post outdoor price signs unless they included certain specified details regarding rates and accommodations (which would have made it practically impossible to implement).

According to a letter from the Miami City Attorney's office, the ordinance was not presented to the members of the legal staff of the City Attorney's office for an opinion regarding its constitutionality before enactment. After sixty-five arrests and convictions in the Municipal Court, the city was enjoined by the Circuit Court of the State of Florida from enforcing the ordinance against four different motel operators on the grounds that it did not come within the scope of the police powers of the city, and further that it was unreasonable, arbitrary, and capricious for the reason that a motel owner could not comply unless he had someone in constant attendance at the sign to make changes as he rented his facilities.

In view of these developments, the City Attorney explained his opinion to the City Commission that the ordinance was not enforceable and requested its revocation. Consequently, the cause against defendant price cutters was dismissed (Leonard W. Brown v. The City of Miami, Stipulation, Motion to Dismiss, and Order No. 170514-I, Sept. 7, 1954). Subsequently, a new ordinance was prepared which the City Attorney claimed “… does not prohibit motels and hotels from advertising and posting signs and does prohibit them from charging prices for accommodations higher than prices posted on signs, and prohibits them from making an extra charge for swimming pool, television, radios, fans and air-conditioning if those are advertised as being available at the motel.” This ordinance was designed, ostensibly at least, to prevent fraud rather than to eliminate price signs.

Hotel Gazette, op. cit.

Such action would seem to border on collusion and would presumably be in violation of the antitrust laws of the state, although such laws are often not enforced with any degree of vigor. See for example, the Note in the Stanford Law Review (Vol. II [Dec. 1949], 200) titled, “The Cartwright Act—California's Sleeping Beauty.”

Thus: “‘We'll put up 50 cent signs. [In fact if such retaliatory action is taken], … we'll put up signs offering free accommodations.’” (“Price War Sparked by Motel Signs,” Miami Herald, Oct. 5, 1954, p. 1.)

“Motels' Price ‘War’ Continues; Rates $1,” Miami Herald, Oct. 6, 1954, p. 1-c.

“Motel Men Seek Peace,” Miami Herald, Oct. 7, 1954, p. 1-c.

“Price War Called Off by Motels,” Miami Herald, Oct. 8, 1954, p. 1-c.

Ibid.

In the Miami rate “war” one hold-out continued at the cut-price level after the agreement was effected. The owner of this motel, on the day following the restoration of rates by the others, reported that an unidentified caller had threatened to burn down his motel unless he removed his rate sign. (“Motel Man Threatened in Rate War,” Miami Herald, Oct. 15, 1954, p. 1-c.) While one might admire the independence and courage of this enterpriser in continuing to display his signs, the soundness of a decision to adhere to a price so far below market is certainly questionable. It would appear offhand that he could have enhanced his position by displaying a price sign which reflected a smaller price differential between his own and competitors' rates.

See Cassady , Price Warfare in Business Competition …, pp. 40–42.