price war

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price war

a situation of aggressive price cutting by a group of rival suppliers as a means of gaining sales at each other's expense. Since price wars, however, tend to be mutually ruinous by destroying the profitability of the market, they are normally avoided, with suppliers preferring to compete instead through various PRODUCT DIFFERENTIATION strategies. See OLIGOPOLY, CARTEL, COLLUSION, PRICE LEADERSHIP.

price war

any competition between rival suppliers centred on aggressive PRICE cutting. Price wars often break out when demand for a product is depressed and there is EXCESS SUPPLY capacity in the market. If FIXED COSTS are a high proportion of total costs, suppliers may be tempted to cut their prices to maintain full capacity working.

Price warfare is beneficial to the consumer and to RESOURCE ALLOCATION within the market insofar as it serves to eliminate inefficient, high-cost suppliers. The problem from the suppliers’ point of view is that cut- throat price competition reduces the profitability of the market and everybody finishes up worse off. For this reason, suppliers, particularly OLIGOPOLY suppliers, will normally try to avoid price wars and direct their competitive efforts into PRODUCT DIFFERENTIATION activities. See COMPETITION METHODS, PRICE LEADERSHIP.

References in periodicals archive ?
Moore Stephens said food suppliers are "bearing the brunt of the ongoing supermarket 'price war' as their profit margins are squeezed by big supermarket chains trying to offer consumers the lowest prices possible whilst maintaining their own profit margins".
We expect grocery deflation to continue well into 2015 as the price war rumbles on."
Ministers are being urged to investigate "price wars" which hold down prices
However, I suppose price wars will bring room prices down to a level that will make demand soar.
Offering BFFF as a vehicle for discussion, McEvoy felt that the multiples themselves would actually like to get off the price war merry-go-round, especially as frozen products are now so lowly priced that they are only competing with each other and not with other product sectors, thus rendering the ever lower prices unnecessary.
Articles Editor Joshua Weinberger asked industry experts if a price war is looming--and, if it comes, what vendors might do to differentiate themselves and their services.
China's aviation regulator has abolished price alliances which were previously forced upon domestic carriers to end price wars and improve market regulation.
All of this got me thinking about price wars, particularly in the setting of enterprise-wide contracts.
With the initiation of the modem "price wars" in the late 1990s, modem and modem chipset manufacturers started looking for ways to lower the component cost.
The move marks a new move in the price wars which could see Boots and Superdrug drawn into the fray.
Bitter price wars. For instance, in the high-consumption area around the western city of Maracaibo, the company's plant that was inaugurated in June meets 25% of the country's demand.