Price Wars Most Likely Occur In An Industry

Price wars happens when companies continue to lower prices to undercut the competition. It can be used to increase revenue in the short term or as a long-term strategy to market share. This can be prevented though, through strategic price management, and thorough understanding of the competition, or even communication with competitors. However, it can most likely occur in an industry for various reasons such as:

a. Under what environmental conditions are price wars most likely to occur in an industry?

i. Bankruptcy: In order to have enough liquidity to survive, companies who are being forced into or near bankruptcy may be forced to reduce their prices to increase sales volume. ii. Competitors: It is always better to offer a new brand on the market instead of trying to match the prices of existing companies in that market. Nevertheless, some competitor would try to target a product and attempt to gain market share by

Predatory pricing: An entrepreneur who has enough wealth may deliberately try to price new or existing products in an attempt to topple existing businesses in that market. vi. Process Optimization: merchants may incline to lower prices rather than shut down or reduce output if they wish to maintain the economy of scale. vii. Product differentiation: Some products are, or at least are seen as, commodities. Because there is little to choose between brands, price is the main competing factor.

b. What are the implications of price wars for a company? The implication of price wars can be severe as companies would fight to make new products while dealing with the high prices associated with research and development (R&D) costs, which is a major challenge posed on firms that are competing to stay in the industry. Therefore, in the long run, companies who successfully manage to make the best product the best prices, will win the price war while pushing other companies out of the market.

c. How should a company try to deal with the threat of price