Price War - Reactions To Price Challenges - Price Stickiness

Price Stickiness

In an oligopoly markets prices can become 'sticky' because if the price rises, competitors will not follow the rise. So the merchant will lose its market share to its competitors on lower prices. But if the price falls, other players will merchants will follow suit if they can. At some point, merchants find that they can not gain profit if they cut the price further— so the sticky price remains.

Price stickiness is extremely common among large supermarket chains and prices, especially for commodities, tend not to vary much between them. Many of the supermarkets monitor price changes in other supermarket chains and vary their prices accordingly until they reach the point where any further decrease in their price will affect profits.

Read more about this topic:  Price War, Reactions To Price Challenges

Other articles related to "prices, price, price stickiness":

Modern Economics - Microeconomics - Market Failure
... production or consumption that are not reflected in market prices ... purchase of goods that have positive externalities in an effort to correct the price distortions caused by these externalities ... In many areas, some form of price stickiness is postulated to account for quantities, rather than prices, adjusting in the short run to changes on the demand side or the supply side ...

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