What effects will the Coles/Safeway Vegetable fruit price was have on shareholde

[vanroevan1994]

What effects will the Coles/Safeway Vegetable fruit price was have on shareholders? is it good for them or bad for them, why?


Thanks in advance!

[observer7]

If we are looking at the simplest answer; it is beneficial to increase prices because shareholders will receive greater dividends (profits).
However if you look at it from another, yet less significant angle, if Coles and Safeway increase their fruit and veg prices it might cause customers to shop at independent retailers such as their local fruit shop that is offering lower prices than the big supermarkets. Therefore, shareholders will miss out dividends made from those sales lost to independent or alternative retailers.

[TrueTears]

For VCE purposes what observer7 has said will suffice, however I am going to elaborate a bit more on this.

First it depends on what efficient market you are assuming the market to be in, Fama-French proposed 3 stages of market efficiency, weak, semi-strong and strong efficiency hypothesis (http://en.wikipedia.org/wiki/Efficient-market_hypothesis). If the market was in strong form, then in fact shareholders will be indifferent in investing in Coles or Safeway assuming they are bidding in a perfectly competitive equilibrium market (http://en.wikipedia.org/wiki/Economic_equilibrium), so infact, little trading will occur between shareholders of Coles/Safeway so the price war will have no effect on shareholders. In this case, it can be said that ALL information (public and private) are already reflected in the share prices, so no new value will be given to shareholders through price alone (although for theoretic purposes we are assuming a perfectly equilibrium market, obviously if market inefficiencies exist, price definitely has value)

However, if we assume weak EMH, then this does not require that prices remain at or near equilibrium, but only that market participants are able to systematically profit from any momentary market inefficiencies. In this case, using technical (http://en.wikipedia.org/wiki/Technical_analysis) or fundamental analysis (http://en.wikipedia.org/wiki/Fundamental_analysis) could yield abnormal returns, however previous studies have shown that on a risk-adjusted basis these abnormal returns do not differ by too much of a margin, hence transaction costs could easily wipe out the profit.

So essentially one must make a decision on which stage the market is in, in terms of efficiency, then based on this decision one can then assess what are the benefits/costs to shareholder value. Note simply asking whether it is "good" or "bad" is very broad, rather the point of every company should be shareholder maximisation, this aligns the vested interests of all stakeholders and reduces agency costs, so asking whether a certain action is "good" or "bad" for shareholders may not necessarily mean it will benefit stakeholders in general. Rather, maximising overall benefits will provide the biggest value to ALL stakeholders.

[Planck's constant]

lol TrueTears.
I have bookmarked your post and I will revisit it after I've had 2-3 years of Commerce under my belt.
I might even understand it then

AS far as the OP is concerned, I am not sure what the price issue actually is.
If it refers to recent press reports, I was reading this week that Coles were complaining that prices had actually come down for fresh produce, which they claimed was hurting them financially.

My understanding of the issue is that Coles (and Safeway) are simply retailers who buy things, mark them up and then sell them. Assuming that their mark up is always the same, they would rather fruit and vegie prices were higher (up to the point where people stop buying because they can no longer afford them).

For instance if Coles usual mark up is 30%, they would prefer apples to cost $2 so they can sell them at $2.60 rather than $1 which they can sell at $1.30. They make more money for selling the same amount of apples.

Therefore, price rises should be good for Coles and Safeway and their shareholders (and price reductions should be bad).

[TrueTears]

haha awesome man, looking forward to discussing some interesting topics with you in the future