195:, innovation capabilities and competitive advantage. Victims of price wars may be downgraded in the market, and even incur bankruptcy. But the companies that involve themselves in price wars are not the only affected parties, as suppliers and investors will also be impacted. This can lead to compromised company image and reputation over the long run. Overall, society may suffer from less efficient allocation of resources as the resources that were poured into participating in a price war could have been allocated elsewhere. In the short term, consumers appear to benefit from lower prices during a price war. However, in the long run, consumers are likely to form unrealistic
211:
49:
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
45:
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
186:
Empirical studies suggest that price wars can significantly damage the companies that practice such behaviour. Notably, price wars can have some short term benefits for firms as it allows them to quickly turnover inventory, alleviate financial pressure, increase social
143:
If the competitor has implemented a short-term promotion, the ideal response is to monitor the competitor's price changes and maintain prices at the current level. Price wars often begin when simple promotional activities are misunderstood as major strategic changes.
46:
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.
108:. Indeed, if Firm A reduces it prices whilst competitor, Firm B, doesn’t reduce its prices, then Firm A can capture market share. And, if Firm A reduces its prices, then Firm B must reduce its prices to avoid being eliminated from the market. The
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Maintain price: Another reaction is to hope that the competitor has made a mistake, but if the competitor's action does make inroads into a merchant's share, this can soon mean customers lose confidence and a subsequent loss of
50:
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.
191:, and may compel firms to enhance their production efficiency. But these short term gains are ultimately offset by long term losses. In the long run, price wars can cause companies to incur losses in their margins,
122:: One firm substantially reduces its prices for a sustained period below its own cost of supply in an attempt to reduce market competition. Predatory pricing on the international market is called
177:
React with other measures - Reducing price is not the only weapon. Other tactics can be used to great effect: improved quality, increased promotion (perhaps to improve the idea of quality).
42:
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”.
207:
Price wars are prevalent in many industries, with academic literature citing cases in market segments, including: electricity, telecommunications, automotive, and airlines.
804:
126:. That is, when a foreign company sells a product in a domestic market at a price below market value, and in doing so, causes injury to the industry in the domestic market.
166:
Split the market: Branch one product into two, selling one as premium and the other as basic. This effective tactic was notably used by
Heublein, the former owner of the
73:
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
83:: 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.
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230:, and other United States carriers matched and exceeded the reduced prices of one another, resulting in increased sales volume but record losses.
235:
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38:, “characterized by the repeated cutting of prices below those of competitors”. This leads to a vicious cycle, where each
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17:
445:
Slade, M.E. (1992). "Vancouver's gasoline price wars: An empirical exercise in uncovering supergame strategies".
238:: In 2020, Saudi Arabia initiated a price war on oil with Russia, which facilitated a 65% quarterly fall in the
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Reduce price: The most obvious, and most popular reaction is to match the competitor's move. This maintains the
491:
Proceedings of the 2021 3rd
International Conference on Economic Management and Cultural Industry (ICEMCI 2021)
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Breshnahan, T.F. (1987). "Competition and
Collusion in American Automobile Industry: The 1955 Price War".
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If the competitor is implementing a long-term price change, the following reactions may be suitable:
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Blattberg, R.C., Briesch, R., Fox, E.J., 1995. How promotions work. Marketing
Science 14, G122–G132.
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Fabra, Natalia and Juan Toro (2005). "Price Wars and
Collusion in the Spanish Electricity Market".
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Has the competitor decided upon a long-term price reduction or is this just a short-term promotion?
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Urbany, J.E.; Dickson, P.R. (1991). "Competitive Price-Cutting
Momentum and Pricing Reactions".
105:
210:
104:, two oligopolistic firms that engage in a price war will often find themselves in a kind of
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is a form of market competition in which companies within an industry engage in aggressive
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Bhattacharya, R., 1996. Bankruptcy and Price Wars. Working Paper, University of
Melbourne.
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reporting oil rents (as a percentage of GDP) over 30%. Lower market prices led to reduced
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89:: If the industry structure is oligopolistic (that is, has few major competitors), the
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will closely monitor each other's prices and be prepared to respond to any price cuts.
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The first reaction to a price reduction should always be to consider the following:
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242:. Revenue from oil exports is heavily relied on by many governments, with
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is such that both firms adopt a low-price strategy to protect themselves.
101:
640:
Busse, M.R. (2002). "Firm
Financial Conditions and Airline Price Wars".
416:"Toward an Understanding of Price Wars: Their Nature and How They Erupt"
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Price wars have been documented in airline markets around the world
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779:"OPEC+ Moves To End Price War With 9.7 Million B/D Cut"
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Dean, J. (1976). "Pricing
Policies for New Products".
715:"MCI Offer Shows Price War Persists In Long Distance"
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products: Where products are homogenous, and product
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493:. Vol. 203. Atlantis Press International B.V.
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678:International Journal of Industrial Organization
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258:and put financial pressure on such governments.
420:International Journal of Research in Marketing
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199:and may be faced with lower quality products.
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58:The main reasons that price wars occur are:
607:"Dumping explained: definition and effects"
487:"E-commerce Price War Based on Game Theory"
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349:Rao, A.R; Bergen, M.E.; Davis, S. (2000).
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236:2020 Russia–Saudi Arabia oil price war
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69:between firms is high, then the
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414:Heil, O.P.; Helsen, K. (2001).
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131:Reactions to price challenges
218:Some key examples include:
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586:. Commonwealth of Australia
557:"Oligopolistic Competition"
499:10.2991/assehr.k.211209.533
319:"Definition of "Price war""
262:
10:
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447:Review of Economic Studies
351:"How to fight a price war"
71:price elasticity of demand
642:RAND Journal of Economics
252:the Republic of the Congo
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584:"Misuse of market power"
284:Monopolistic competition
27:Form of business rivalry
719:The Wall Street Journal
539:Harvard Business Review
355:Harvard Business Review
805:"Oil rents (% of GDP)"
582:ACCC (26 March 2023).
561:Monash Business School
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203:Examples of price wars
609:. European Parliament
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182:Effects of price wars
155:(but reduces profits
777:Jacobs, T. (2020).
563:. Monash University
294:Penetration pricing
81:Penetration pricing
842:Business rivalries
811:. World Bank Group
713:Young, S. (2004).
386:10.1007/BF00664225
228:Northwest Airlines
216:
106:prisoner’s dilemma
36:pricing strategies
508:978-94-6239-483-4
374:Marketing Letters
321:. Merriam-Webster
224:American Airlines
120:Predatory pricing
18:Price competition
16:(Redirected from
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240:price of oil
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75:market share
67:substitution
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110:equilibrium
102:game theory
831:Categories
699:10016/5004
361:: 107–116.
305:References
153:status quo
63:Homogenous
40:competitor
517:245787126
289:Oligopoly
274:Marketing
170:brand of
100:Applying
87:Oligopoly
32:price war
815:24 April
789:24 April
724:23 April
613:23 April
590:23 April
567:23 April
522:23 April
394:73560463
325:23 April
279:Monopoly
263:See also
168:Smirnoff
157:pro rata
837:Pricing
761:2098583
654:3087435
467:2297954
299:Pricing
269:Bidding
124:dumping
91:players
759:
652:
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505:
465:
392:
250:, and
248:Kuwait
163:sales.
54:Causes
757:JSTOR
650:JSTOR
513:S2CID
463:JSTOR
390:S2CID
172:vodka
817:2023
791:2023
726:2023
615:2023
592:2023
569:2023
524:2023
503:ISBN
327:2023
244:Iraq
749:doi
694:hdl
686:doi
495:doi
455:doi
428:doi
382:doi
833::
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