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Price wars

Price war is a term used in business to indicate a state of intense competitive rivalry accompanied by a multi-lateral series of price reductions. One competitor will lower its price, then others will lower their prices to match . If one of the reactors reduces their price below the original price cut, then a new round of reductions is initiated. In the short-term, price wars are good for consumers that are able to take advantage of lower prices. Typically they are not good for the companies involved. The lower prices reduce profit margins and can threaten survival.

In the long term, they can be good for the dominant firms in the industry however. Typically the smaller more marginal firms will be unable to compete and will shut down. The remaining firms absorb the market share of the terminated ones. The main losers then, are the marginal firms and the people that invested in them. In the long-term, the consumer could lose also. With less firms in the industry, prices tend to increase, sometimes to a level higher than before the price war.

The main reasons that price wars occur are:

See also : pricing, marketing, penetration pricing, production, costs, and pricing, oligopoly