DEFINITION of 'Competition-Driven Pricing'

A method of pricing in which the seller makes a decision based on the prices of its competition. Competition-driven pricing focuses on determining a price that will achieve the most profitable market share and does not always mean the price is the same as the competition, it could be slightly lower. Research is done in an attempt to eliminate the competition and it is important to accurately interpret communication signals in order to prevent a price war.

BREAKING DOWN 'Competition-Driven Pricing'

Determining how to profitably achieve the greatest market share without incurring excessive costs requires strategic decision making. As such, the focus of the firm should not solely be on obtaining the largest market share, but in finding the appropriate combination of margin and market share that is most profitable in the long run.

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