Price War

Price War

A clash between rival companies in which prices are being cut in a cycle of thrust and counter-thrust. The situation in which a price war is most likely to start is when there is oversupply, i.e. capacity utilization is low. So firms attempt to keep their overheads covered by boosting their market share. If only one firm cuts prices to boost market share, it could benefit. When a price war breaks out, however, no company benefits, only the consumer. Even that is only in the short term, however, because many price wars end when one firm withdraws from the market. In the longer term, that may enable the remaining producers to push up their prices sharply.