A price war is a competitive exchange among rival companies who lower the price points on their products, in a strategic attempt to undercut one another and capture greater market share. A price war may be used to increase revenue in the short term, or it may be employed as a longer-term strategy.
What causes a price war?
If competing companies also lower their prices, a price war can occur. Price wars most often strike industries where there is both heavy competition and several comparable products. Under these conditions, there is a large incentive for a competitor to cut prices in order to gain a greater share of the market.
What happens when there is a price war?
A price war is when two or more rival companies lower prices of comparable products or services with the goal of stealing customers from their competitors—or gaining market share. Price wars can come at a great cost since it decreases a company's profit margins in the short term.
What is price war example?
Another example of a price war is in the low-cost airline market caused in part by over-capacity on some routes. The leading supermarkets often engage in extensive price-cutting for staple products after Christmas when budgets are tight, and many families are even more price-sensitive than usual.
What will you do if your competitor starts a price war?
- Do your research to understand why you're in this price war.
- Add value to the product or service without lowering the price.
- Advertise if you can't lower your prices more in the price war.
- Find a way to stand out in some other way than price.
- Focus on your brand.
How might an organization sustain and win a price war?
“To win a price war, you must be strategic in your firing power," Mathews says. You could keep your prices steady but offer more of a product and service, so the value is better. You could even raise your prices a little—but then offer more of the product or service.17 Apr 2017
Is price matching illegal?
Generally, the antitrust laws require that each company establish prices and other terms on its own, without agreeing with a competitor. A plain agreement among competitors to fix prices is almost always illegal, whether prices are fixed at a minimum, maximum, or within some range.
Is price collusion illegal?
When competitors collude, prices are inflated and the customer is cheated. Price fixing, bid rigging, and other forms of collusion are illegal and are subject to criminal prosecution by the Antitrust Division of the United States Department of Justice.When competitors collude, prices are inflated and the customer is cheated. Price fixing, bid rigging, and other forms of collusion are illegal and are subject to criminal prosecution by the Antitrust DivisionAntitrust DivisionMission: The mission of the Antitrust Division (ATR) is to promote economic competition through enforcing and providing guidance on antitrust laws and principles. Resources: The FY 2021 budget request for ATR totals $188.5 million, which is a 13.1 percent increase over the FY 2020 Enacted.https://www.justice.gov › doj › page › file › downloadAntitrust Division (ATR) - Department of Justice of the United States Department of JusticeUnited States Department of JusticeDOJ prosecutes federal law offenders and represents the U.S. Government in court; its attorneys represent the rights and interests of the American people and enforce federal criminal and civil laws, including antitrust, civil rights, environmental, and tax laws; its Immigration Judges ensure justice for immigrants in https://www.justice.gov › jmd › file › downloadU.S. DEPARTMENT OF JUSTICE OVERVIEW.
Is price cutting legal?
A firm's independent decision to reduce prices to a level below its own costs does not necessarily injure competition, and, in fact, may simply reflect particularly vigorous competition. A: Pricing below a competitor's costs occurs in many competitive markets and generally does not violate the antitrust laws.