A price war is a form of market competition in which companies within an industry engage in aggressive pricing strategies, “characterized by the repeated cutting of prices below those of competitors”. This leads to a vicious cycle, where each competitor attempts to match or undercut the price of the other. Competitors are driven to follow the initial price-cut due to the downward pricing pressure, referred to as “price-cutting momentum”.
Heil and Helsen (2001) proposed that a price war exists only if one or more of a set of qualitative conditions are satisfied. These conditions include: (1) a primary focus on competitors rather than consumers, (2) undesirability of pricing interactions for competitors, (3) absence of intention to start a price war by any competitor, (4) violation of industry norms through competitive interactions, (5) accelerated pricing interactions in comparison to the usual pace, (6) a downward direction of pricing, and (7) unsustainable pricing interplay.
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. Firms may be cautious when engaging in price wars as this competition can lead to prices that are unsustainable for long-term profitability.
The main reasons that price wars occur are:
Homogenous products: Where products are homogenous, and product substitution between firms is high, then the price elasticity of demand will also be high. As a result, if one company in an industry lowers its prices, other firms offering similar products must also reduce their prices to retain their market share.
Penetration pricing: If a firm is trying to enter an established market, it may offer lower prices than existing brands to incentivise consumers to switch to their product.
This page is automatically generated and may contain information that is not correct, complete, up-to-date, or relevant to your search query. The same applies to every other page on this website. Please make sure to verify the information with EPFL's official sources.
In theories of competition in economics, a barrier to entry, or an economic barrier to entry, is a fixed cost that must be incurred by a new entrant, regardless of production or sales activities, into a market that incumbents do not have or have not had to incur. Because barriers to entry protect incumbent firms and restrict competition in a market, they can contribute to distortionary prices and are therefore most important when discussing antitrust policy.
In economics, the cross (or cross-price) elasticity of demand measures the effect of changes in the price of one good on the quantity demanded of another good. This reflects the fact that the quantity demanded of good is dependent on not only its own price (price elasticity of demand) but also the price of other "related" good. The cross elasticity of demand is calculated as the ratio between the percentage change of the quantity demanded for a good and the percentage change in the price of another good, ceteris paribus:The sign of the cross elasticity indicates the relationship between two goods.
An oligopoly () is a market in which control over an industry lies in the hands of a few large sellers who own a dominant share of the market. Oligopolistic markets have homogenous products, few market participants, and inelastic demand for the products in those industries. As a result of their significant market power, firms in oligopolistic markets can influence prices through manipulating the supply function. Firms in an oligopoly are also mutually interdependent, as any action by one firm is expected to affect other firms in the market and evoke a reaction or consequential action.
Many transportation markets are characterized by oligopolistic competition. In these markets customers, suppliers and regulators make decisions that are influenced by the preferences and the decisions of all other agents. In particular, capturing and under ...
Oligopolistic competition occurs in various transportation markets. In this paper, we introduce a framework to find approximate equilibrium solutions of oligopolistic markets in which demand is modeled at the disaggregate level using discrete choice models ...
INFORMS2021
, ,
We propose a framework to find optimal price-based policies to regulate markets characterized by oligopolistic competition and in which consumers make a discrete choice among a finite set of alternatives. With this framework, we can include general discret ...