We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Nobody downloaded yet

Industrial Economics: Threat of Price War - Essay Example

Comments (0)
Summary
Industrial Economics: Threat of Price War Introduction “When a company wants to increase its market share, usually the easiest way is to reduce prices, which increases product sales”(Price war, 2011). The above strategy will force competitors also to reduce the prices of their products…
Download full paper
GRAB THE BEST PAPER
Industrial Economics: Threat of Price War
Read TextPreview

Extract of sample
Industrial Economics: Threat of Price War

Download file to see previous pages... In a heavily globalized and competitive business world, price wars often occur between different firms to gain control in the market. For example, James Quinn (2012) has pointed out that “Ocado is to cut its prices on a range of products in a bid to steal a march on rivals such as Tesco in the battle for online supermarket delivery customers” (Quinn, 2012). Price wars affect the market in many ways. “There's nothing wrong with offering two different products at two different prices for two different markets, as long as the products really are different”(Brodsky, 2012). However, price wars often occur in the same market and that also with respect to similar products. Price wars can discourage potential competitors from entering a market. This paper analyses how a threat of price war can discourage entry by potential competitors and the actions that might help an organization to make price war threat credible. How a threat of price war can discourage entry by potential competitors? “A price war breaks out when entrants arrive. During the price war, the entrants' price is below the incumbent's price. It is even below the entrants' costs”(Elzinga & Mills, 1999, p.4). Entry into a new market is extremely difficult for an organization especially when the market was highly competitive. It should be noted that even though the number of market players are increasing as a result of globalization and liberalization, the number of potential consumers remains almost the same. In other words, it is difficult for new entrants to create new customer base. They have to canvass the customers of their competitors. However, existing customers may not switch over to a new entrant unless they were convinced either by the quality or by the prices of the competing products. Compared to the entrant, an incumbent may have some advantages also. Long run average cost (LRAC) of the entrant could be more than that of the incumbent which is evident from the following graph. (Industrial economics – Lecture 9: Barriers to entry and entry deterring strategies, slide 4) Incumbent will be able to reduce LRAC because of; Access to superior technology, Hold patents, Trade secrets, Exclusive ownership/control over factor inputs and Cheaper sources of finance etc. Thus it is easy for the incumbent to reduce the prices. (Industrial economics – Lecture 9: Barriers to entry and entry deterring strategies, slide 5) Economies of scale is another factor which causes problems to the entrant. Economies of scale refers to the cost advantages that an organization obtains due to expansion. It should be noted that it is easy for the incumbent to control the expansion cost because of its better awareness in the market. On the other hand an entrant may be forced to pay more cost for expansion because of its lack of knowledge about the market. From the above graph is evident that the new entrant will have to pay a higher absolute cost (AC) penalty if it wishes to enter this market which can make the entry unprofitable. Limit pricing is another strategy used by incumbents to block the entry of entrants. Limit pricing is nothing but charging prices below the monopoly prices which is described in the graph below. It should be noted that the incumbent was charging monopoly prices earlier. The threat from new entrants forced them to adjust the prices based on the market demand. It is difficult for the entrant to reduce the p ...Download file to see next pagesRead More
Comments (0)
Click to create a comment or rate a document
CHECK THESE SAMPLES - THEY ALSO FIT YOUR TOPIC
War and the Threat of External Violence
It contains, in a concentrated form, answers to the basic political and philosophical questions of the 30’s – 40’s, which dominated life of all progressive humanity: attitude towards socialism, fascism, dangers of a totalitarian society and further ways of democratic development, etc.
6 Pages(1500 words)Essay
Macroeconomics - Industrial Economics
The four-firm concentration ratio measures the output that is produced by four top firms in an industry. There are six firm concentration ratios and eight firm concentration ratios. Concentration ratio is usually used to measure the extent of oligopoly and the degree to which the largest firms control a market.
8 Pages(2000 words)Essay
Economics The Industrial Revolution
The few workers a business owner employed would be managed on a daily basis, and that management strategy dealt more with the particular personalities involved rather than the torrent of theories that currently occupy rows of shelves in local bookstores. The Industrial Revolution fundamentally altered almost every aspect of business organization and operation.
2 Pages(500 words)Essay
Industrial Economics
Industry analysis facilitates business owners to discover and recognize the threats and opportunities facing their businesses, and to center their resources on developing inimitable and distinctive competencies that could direct to a competitive advantage.
6 Pages(1500 words)Essay
Business Economics Essay
The oligopoly theory is well known for the employment of, "Credible threats to punish cheating from cooperative outcomes (and) the extent to which imperfect information may restrict the scope of firms to employ such punishments. One way in which firms may seek to make threats credible is through strategic investments, for example in production capacity 2"
8 Pages(2000 words)Essay
Price Discrimination -Economics
However, economics is a very cunning area of study in terms of the number of shortcuts and twists it offers to the people who are well aware of the complete picture of theories and practices of economics. Economists are often referred to as "legal crooks" owing to the fact that their knowledge of economics and the underlying principles along with the "valid" practices within the framework of law (Brue, 2004).
8 Pages(2000 words)Essay
Managerial Economics - Price Discrimination
First-degree price discrimination is the sale of identical goods are sold at different prices to each individual consumer. An example will be sale of new and used pianos where despite similar features some pianos might attract a higher tariff based on the bargaining factors involved.
3 Pages(750 words)Essay
Economics
ght to negotiate together with an employer (or employers) over wages, working hours and other terms as well as conditions of employment; meaning that such things are not positioned unilaterally by administration, but must be agreed upon by both parties. In numerous conditions,
6 Pages(1500 words)Essay
Industrial Economics
The theory of perfect competition assumes that firms are free to enter into or exit from a market. In practice, it is quite difficult to find out a perfectly competitive industry where a firm does not face any impediments while entering
10 Pages(2500 words)Essay
Industrial Organization Economics
Many companies and nations have responded to this increased pressure from competition using different strategies. Similarly, the competing industries feel the effects of
8 Pages(2000 words)Essay
Let us find you another Essay on topic Industrial Economics: Threat of Price War for FREE!
Contact us:
+16312120006
Contact Us Now
FREE Mobile Apps:
  • About StudentShare
  • Testimonials
  • FAQ
  • Blog
  • Free Essays
  • New Essays
  • Essays
  • The Newest Essay Topics
  • Index samples by all dates
Join us:
Contact Us