Price war

A price war is a form of market competition in which companies within an industry engage in aggressive pricing activity "characterized by the repeated cutting of prices below those of competitors".^[1] This leads to a cycle, where each competitor attempts to match or undercut the price of the other.^[2] Competitors are driven to follow the initial price-cut due to the downward pricing pressure, referred to as “price-cutting momentum”.^[3]

While price wars can offer short-term benefits to consumers by providing them with lower prices, they can have a negative impact on the companies involved by reducing their profit margins. Moreover, the negative effects of price wars on companies can extend beyond the short term, as the companies involved may struggle to recover their lost profits and maintain their market share.^[4] Firms may be cautious when engaging in price wars as this competition can lead to prices that are unsustainable for long-term profitability.^[5]

^ "Definition of "Price war"". Merriam-Webster. Retrieved 23 April 2023.
^ Rao, A.R; Bergen, M.E.; Davis, S. (2000). "How to fight a price war". Harvard Business Review. 78: 107–116.
^ Urbany, J.E.; Dickson, P.R. (1991). "Competitive Price-Cutting Momentum and Pricing Reactions". Marketing Letters. 2 (4): 393–402. doi:10.1007/BF00664225. S2CID 73560463.
^ Cite error: The named reference HH was invoked but never defined (see the help page).
^ Slade, M.E. (1992). "Vancouver's gasoline price wars: An empirical exercise in uncovering supergame strategies". Review of Economic Studies. 59 (2): 257–276. doi:10.2307/2297954. JSTOR 2297954.

[def-1] "Definition of "Price war"". Merriam-Webster. Retrieved 23 April 2023.

[Rao-2] Rao, A.R; Bergen, M.E.; Davis, S. (2000). "How to fight a price war". Harvard Business Review. 78: 107–116.

[3] Urbany, J.E.; Dickson, P.R. (1991). "Competitive Price-Cutting Momentum and Pricing Reactions". Marketing Letters. 2 (4): 393–402. doi:10.1007/BF00664225. S2CID 73560463.

[HH-4] Cite error: The named reference HH was invoked but never defined (see the help page).

[5] Slade, M.E. (1992). "Vancouver's gasoline price wars: An empirical exercise in uncovering supergame strategies". Review of Economic Studies. 59 (2): 257–276. doi:10.2307/2297954. JSTOR 2297954.

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