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In the long term, they can be good for the ''dominant firms'' in the industry however. '''''He who laughs last, laughs best'''''. Typically the smaller more marginal firms will be unable to compete and will '''''shut down'''''. The remaining firms absorb the market share of the terminated ones. The '''''main losers''''' then, are the marginal firms and the people that invested in them. In the long-term, the consumer could lose also. With fewer firms in the industry, prices tend to '''''increase''''', sometimes to a level higher than before the price war.

The main reasons that price wars occur are:
  • To utilize excess plant capacity. Rather than run a plant at well below its optimum capacity, firms reduce their prices so as to sell enough to keep the plant running at its optimum level.

  • Bankruptcy and survival. Companies near bankruptcy may be forced to reduce their prices so as to increase sales volume and thereby provide enough liquidity for survival.

  • Response to a competitive attack. A competitor might target your product and attempt to gain share from you by selling a product at a low price. Rather than retaliate with a matching price cut, it is usually better to introduce a fighting brand (see Brand Management ).

  • The nature of the Product . Some products, such as Commodities , are very difficult to Differentiate . Without unique product features, price becomes the main basis of comparison.

  • Penetration Pricing . If some of the firms are employing a penetration pricing strategy, their prices will be relatively low.

  • Oligopoly . If the industry structure is oligopolistic (that is, few competitors), the players will closely monitor each others prices and be prepared to respond to any price cuts.


''See also : Pricing , Marketing , Penetration Pricing , Production, Costs, And Pricing , Oligopoly ''