Price War

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Perfect Competition

    A market structure in which the following five criteria are met: ...
  2. Low-Hanging Fruit

    A commonly used metaphor for doing the simplest or easiest work ...
  3. Price-Taker

    1. An investor whose buying or selling transactions are assumed ...
  4. Efficient Market Hypothesis - EMH

    An investment theory that states it is impossible to "beat the ...
  5. Oligopoly

    A situation in which a particular market is controlled by a small ...
  6. Elasticity

    A measure of a variable's sensitivity to a change in another ...
RELATED FAQS
  1. What is an antitrust law?

    Antitrust laws - also referred to as "competition laws" - are statutes developed by the U.S. Government to protect consumers ... Read Full Answer >>
  2. How do companies use price discrimination?

    Price discrimination is a strategy that companies use to charge different prices for the same goods or services to different ... Read Full Answer >>
  3. What are the different types of price discrimination and how are they used?

    Price discrimination is one of the competitive practices used by larger, established businesses in an attempt to profit from ... Read Full Answer >>
  4. Under what circumstances might price elasticity significantly change?

    Price elasticity of demand is an important concept in economics and price theory. The term "elasticity" refers to the sensitivity ... Read Full Answer >>
  5. What is the difference between yield to maturity and the spot rate?

    Bonds are marketable and relatively liquid securities, and there are several different accounting methods for discounting ... Read Full Answer >>
  6. What determines the price of a bond in the open market?

    One of the most basic concepts that investors should become familiar with is how bonds are priced. Bonds do not trade like ... Read Full Answer >>
Related Articles
  1. Markets

    Great Company Or Growing Industry?

    Look at the big picture when choosing a company - what you see may really be a stage in its industry's growth.
  2. Economics

    A Practical Look At Microeconomics

    Learn how individual decision-making turns the gears of our economy.
  3. Personal Finance

    A History Of U.S. Monopolies

    These monoliths helped develop the economy and infrastructure at the expense of competition.
  4. Entrepreneurship

    10 Breakout Ideas For Small Businesses

    If your business has hit a wall, we've got the answer to break through and increase sales and earnings.
  5. Entrepreneurship

    9 Tips For Growing A Successful Business

    Give your business what it needs to thrive and it will reward you for years to come.
  6. Economics

    Understanding Marginal Benefit

    Marginal benefit is an economic term that describes the maximum amount a consumer is willing to pay for an additional unit of a good or service.
  7. Investing Basics

    Methods To Estimate The Cost Of A Local Restaurant

    Here are key factors to consider, and helpful formulas to use, to assess how much a local restaurant would likely be sold for, if you're a possible buyer.
  8. Trading Strategies

    Know How To Manage Gaps On Your Trading Strategy

    Gaps generate profitable strategies right after they print, as well as during retracements that test those levels, often months or years later.
  9. Economics

    Higher Oil Prices On the Horizon? Maybe Not.

    Despite a decision by some oil companies to reduce the overall supply of oil, a sustained ascent in oil prices might not be on the immediate horizon.
  10. Investing Basics

    The Easy Way To Measure Bitcoin's Fair Market Value: A Do-It-Yourself Guide

    How do you determine the fair market value of a currency that has appreciated faster than the shares of even the hottest technology stocks?

You May Also Like

Hot Definitions
  1. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  4. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  5. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  6. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
Trading Center