ECONOMICS
COMPETITION AND MARKET STRUCTURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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True
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False
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Either A or B
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None of the above
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Detailed explanation-1: -A price war refers to the action of two rival companies who both lower the prices on products, in an attempt to undercut one another and capture greater market share.
Detailed explanation-2: -S airlines compete with Xone airlines which charges $550 for the same trip. S airlines entered into a price war to attract customers, reduced its price substantially, and lowered the price to $500 per trip. To sustain itself in the market, Xone airlines also dropped its price to $490 per trip.
Detailed explanation-3: -If you undercut someone or undercut their prices, you sell a product more cheaply than they do. [business] The firm will be able to undercut its competitors whilst still making a profit. [ VERB noun]
Detailed explanation-4: -Price war is “commercial competition characterized by the repeated cutting of prices below those of competitors". 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.
Detailed explanation-5: -The outcome of a price war is a significantly lower price (usually double-digit percentage drops) that benefits the consumers of those products. However, this also severely tests producers who now have a much lower revenue stream.