Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Price War

What it is:

A price war is an event whereby two or more companies continually lower prices to undercut each other.

How it works (Example):

Airline companies are famous for their price wars. If Airline XYZ cuts the price of a flight from Los Angeles to New York from $800 to $700, Airline ABC, which is competing for business on that route, might cut its fare to $650. Airline XYZ might respond by lowering its fair to $625, and so on.

Why it Matters:

Engaging in a price war is a competitive strategy, usually to capture market share. Falling prices tend to attract more customers. Some companies may choose to sell a product or service at a loss, however, in order to capture market share and outwin competitors. In some cases, this might lead to antitrust violations.