Th3.4: Prices Wars Flashcards
1
Q
These occur in markets where…
A
non-price competition is weak - where goods have weak brands and consumers are price conscious. also occur when it is difficult to collude
2
Q
What will a price war do?
A
drive prices down to levels where firms are frequently making losses
3
Q
What will a price war do?
A
drive prices down to levels where firms are frequently making losses
4
Q
Firms will continue to produce in the short run, if…
A
if their AVC is below AR
5
Q
What will firms do in the long run?
A
leave the market and prices will have to rise since supply falls
6
Q
What do price wars do to profits?
A
lower industry profits
7
Q
What is one example of an industry using heavy price wars?
A
supermarkets - desperately trying to offer lower prices than their rivals
