Price wars are becoming more common because managers tend to view a price change as an easy, quick, and reversible action. The emergence of the Internet will affect pricing and are changing their price structures to include free on-line trades for high-end customers. These companies appear to be engaged in more focused pricing battles, unlike the “globalized” price war in the long-distance phone market. Most managers will be involved in a price war at some point in their careers. Every price cut is potentially the first salvo, and some discounts routinely lead to retaliatory price cuts that then escalate into a full-blown price war. That’s why it’s a good idea to consider other options before starting a price war or responding to an aggressive price move with a retaliatory one. Often, companies can avoid a debilitating price war altogether by using a set of alternative tactics. Our goal is to describe an arsenal of weapons other than price cuts those managers who are engaged in or contemplating a price war may also want to consider.
Generally, price wars start because somebody somewhere thinks prices in a certain market are too high. Or someone is willing to buy market share at the expense of current margins. Price wars are becoming more common because managers tend to view a price change as an easy, quick, and reversible action. When businesses don’t trust or know one another very well, the pricing battles can escalate very quickly. And whether they play out in the physical or the virtual world, price wars have a similar set of antecedents. By understanding their causes and characteristics, managers can make sensible decisions about when and how to fight a price war, when to flee one—and even when to start one.