Price war is a term used in the economic sector to indicate a state of intense competitive rivalry accompanied by a multi-lateral series of price reductions. One competitor will lower its price, then others will lower their prices to match. If one of them reduces their price again, a new round of reductions starts. In the short term, price wars are good for consumers, who can take advantage of lower prices. Often they are not good for the companies involved because the lower prices reduce profit margins and can threaten their survival.
In the medium to long term, price wars can be good for the dominant firms in the industry. Typically, the smaller, more marginal, firms cannot compete and must close. The remaining firms absorb the market share of those that have closed. The real losers then, are the marginal firms and their investors. In the long term, the consumer may lose too. With fewer firms in the industry, prices tend to increase, sometimes higher than before the price war started.
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Famous quotes containing the words price and/or war:
“One has to have run a household before one can know the price of rice and firewood, and one has to have raised children before one can understand a parent’s love.”
—Chinese proverb.
“There is great fear expressed on all sides lest this war shall be made a war for the negro. I am willing that it shall be. It is a war to found an empire on the negro in slavery, and shame on us if we do not make it a war to establish the negro in freedom—against whom the whole nation, North and South, East and West, in one mighty conspiracy, has combined from the beginning.”
—Susan B. Anthony (1820–1906)