Edgeworth Price Cycle

AAA

DEFINITION of 'Edgeworth Price Cycle'

In markets with homogenous goods, a sequence of rapid, incremental price cutting among competitors that lowers the retail price until it reaches the cost of the good. Eventually, competitors reset prices to their previous levels (allowing a normal retailer profit) and other competitors follow. This cycle may occur very rapidly in markets where there is heavy price competition.

INVESTOPEDIA EXPLAINS 'Edgeworth Price Cycle'

Engaging in this type of recurring price war hurts profits, but is difficult to avoid in some markets. When consumers are highly price sensitive, having a slightly higher price may significantly deter business, thus forcing a rapid price cut. Businesses attempt to differentiate their goods whenever possible so that a homogenous market does not exist. For example, in the gasoline market, retailers insert additives which supposedly make the brand of gasoline superior to others. These attempts at differentiation have met with limited success, however, and thus Edgeworth price cycling remains a problem in gasoline retailing.

RELATED TERMS
  1. Product Life Cycle

    The period of time over which an item is developed, brought to ...
  2. Theory Of Price

    An economic theory that contends that the price for any specific ...
  3. Memory-Of-Price Strategy

    A trading strategy that assumes the support and resistance points ...
  4. Market Price

    The current price at which an asset or service can be bought ...
  5. Price Level

    The average of current prices across the entire spectrum of goods ...
  6. Setup Price

    A price level predetermined as the point of entry into a specific ...
Related Articles
  1. Economics

    Target Prices: The Key To Sound Investing

    Learn how to evaluate the legitimacy of target prices and why investors should trust these over ratings.
  2. An Introduction To Stock Market Indexes
    Investing Basics

    An Introduction To Stock Market Indexes

    Investopedia explains the five most talked about indexes and what makes them all different.
  3. Active Trading Fundamentals

    Support And Resistance Basics

    Understanding the concept of Support and Resistance in trading can drastically improve your short-term investing strategy.
  4. Trading Strategies

    Introduction To Technical Analysis Price Patterns

    To "find your game" in technical analysis, you need to be able to recognize reversals and continuations as they form.
  5. Forex Education

    Using Double Tops And Double Bottoms In Currency Trading

    Find out how to apply the two most common price reversal patterns to your trading.
  6. Mergers are not the same as acquisitions.
    Investing

    What's a Merger?

    Mergers are not the same as acquisitions. In an acquisition, one company buys and subsumes another company, leaving only the buyer in place. In most mergers, both companies merge to form an entirely ...
  7. As the number of new employees increases, the marginal product of an additional employee will at some point be less.
    Investing

    More is Less: Diminishing Marginal Returns

    In formal economic terms, the law of diminishing marginal returns states that as the number of new employees increases, the marginal product of an additional employee will at some point be less ...
  8. Typically, SPEs are subsidiaries of a larger corporation.
    Investing

    How Special Purpose Entities Help Fight Risk

    A special purpose entity, sometimes called a special purpose vehicle, is a legal entity created for one very limited, particular task. Typically, SPEs are subsidiaries of a larger corporation.
  9. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.
    Professionals

    What is a SWOT Analysis?

    SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. SWOT analysis is a management tool used to identify strategies for success. It may be used to guide individual thinking, group ...
  10. Accounting is the recording of financial transactions of a business or organization.
    Professionals

    What is Accounting?

    Accounting is the recording of financial transactions of a business or organization. It also includes the process of summarizing, analyzing and reporting these transactions in financial statements.

You May Also Like

Hot Definitions
  1. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  2. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  3. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  4. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  5. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  6. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
Trading Center