The purpose of this paper is to explore the impacts that a new retailer entering a previously stable market has on the domestic retailers' pricing behaviour. The paper describes and analyses the context of the entry of the hard discounter chain Lidl into the Finnish market.
To illustrate the effects of competitive entry on pricing behaviour of competitors, prices of 20 grocery items were collected from three different chains and three market areas in three different points of time. Based on these data the pricing initiatives of the entrant and the reactions of the domestic competitors are described and analysed in terms of four dimensions: competition, geographical, assortment, and time.
The analysis reveals that the domestic retailers reacted to the intensifying price competition by engaging in selective price changes. Both price cuts and price increases were detected.
The paper provides empirical insights about the impacts of intensifying competition on pricing.
