An exploration of the impact that asymmetric information has on the transaction between consumers and firms in the Fast-Moving Consumer Goods (FMCG) industry. This study uses a theoretical model to analyse two extremes for the FMCG landscape and includes a complete detailed set of mathematical steps and visual representations to identify what consumer wellbeing and business survival look like in each case. The first extreme looks at a world where ‘brand is king’; information from marketing and the power of brand loyalty dictates sales, making price irrelevant in the consumer’s purchase decision. The other extreme focuses on a world where ‘price is king’; rendering marketing useless as firms become price-takers.
Real-world applications are drawn from the theoretical model, using the empirical example of ‘The Market For Cereal’ as a realistic FMCG setting that simulates the theoretical model. Upon comparison between the theoretical and empirical findings, useful implications are drawn for both firms and consumers. Firms undeniably prefer a market that is closer to ‘brand is king’, as they can maximise the most revenue from exploiting uninformed consumers with higher prices than they could achieve in a ‘price is king’ market. For consumers, the question of whether it is worthwhile to incur search costs is dependent on the difference between their reservation and purchase price paid for the good. If the informed consumer’s search for the lowest market price, or highest brand reputation, does not exceed their reservation price, then searching around was worthwhile in the transaction. All consumers are indifferent between a market closer to brand or price is king; it is only firm profits that differ significantly.
Further research could test whether other industries also occupy various levels along the Ψ market power scale, and ultimately, whether the Ψ market power scale could be applicable as a universal scale for any industry to help indicate whether the firm or consumer holds more power in the information asymmetry between them.
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