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