Price War

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DEFINITION of 'Price War'

When companies continuously lower prices to undercut the competition. A price war may be used to increase revenue in the short term or as a longer term strategy to gain market share. Price wars can be prevented through strategic price management (with non-aggressive pricing), thorough understanding of the competition, or even communication with competitors.

BREAKING DOWN 'Price War'

When a company wants to increase market share, usually the easiest way is to reduce prices, which increases product sales. The competition may be forced to follow suit if its products are similar. As prices get lower the quantity of sales increases and customers receive the benefits. Eventually, a price point is reached that only one company can afford. Some companies will even sell at a loss in an attempt to eliminate the competition completely.

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