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Essay / Research Paper Abstract
This 3 page defines what is meant by the term price war, how it occurs and the impact it has on the firm and then discusses why firms may prefer to form strategic alliances rather than enter into price wars. The bibliography cites 2 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TEpricewar.rtf
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Unformatted sample text from the term paper:
undertake price cutting in order to gain market share. The price war occurs where firms believe that they can gain from such an aggressive strategy and carries on until one
(or all but one) firm, backs down (Nellis and Parker, 2006). A price war results in a number of progressive price cuts as each firm tries to undercut the other.
For this reason a price war will often take place where there are goods or services that are either perfect, or near perfect substitutes, or the same goods are being
sold, such as with a supermarket. Therefore, price wars are period of intense competition (Nellis and Parker, 2006). It may be argued that this type of competition may be
good for consumers, driving prices down. However, where there are significant decreases in prices this will result in decreases on the profit level per item; as such this is often
deemed to be a situation that companies should avoid, due to the lower level of profits (Nellis and Parker, 2006). In some cases a price war can result in
firm suffering losses, the price may fall below the cost, but if a firm believes that they can win the price war in the long term they may suffer the
losses in the sort term, especially if it has the potential of driving another firm pout of the market (Nellis and Parker, 2006). If this is the case once
the competing firm(s) have withdrawn from the market the remaining firm has more market share and market power and can recoup looses by increasing prices (Nellis and Parker, 2006).
Therefore it is possible to see how it may result in long term benefits, for the winning firm if they remain dominant. However, in many cases a competing firm
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