Why Tesco’s is launching a Price War

Tesco is trying to increase its market share against rivals Asda and Sainsbury’s. By reducing its prices on basic goods it is more likely to get a higher footfall, we would also expect the increase in quantity demanded to offset the money lost due to lowering the prices. This means we would expect the Total Revenue to drop slightly but not by much.

With more people visiting stores to buy these cheap goods they would also see other goods in store such as the electrical and technological goods which they are more likely to buy, again this would offset the money Tesco would loose from reducing their profit margin. [...]