Friday, April 17, 2009

Price Wars

The Bertrand homogeneous oligopoly model shows us that industries that have only a few firms can end up setting prices equal to marginal cost if the firms compete on price. Hence, one of the implications is that if firms compete on prices, that firms will end up in a price war. Over time as I find examples of price wars I will add them to this blog.

Video Game Console Players
Here is a brief article on the possibility of a price war in the video game console player market.

Gasoline
Here is a short story on price wars in Pasenda California for retail gasoline, and some of my comments.

On-line Books
Walmart and Amazon were in a price war in the on-line book market.

Equity Clearing Services
Firms in the European stock clearing market have begun a price war.

2 comments:

Jeff Yager said...

When you say, "compete on price", do you mean that this is because their products are so similar that price is the main reason a consumer who choose product A over B? Does the Coke vs. Pepsi wars work like this? I seem to view that as more of a marketing war.

Stacey said...

What I mean by "competing on price" is that firms use price as their primary means of selling the good or service. For example, gasoline is a product that competes on price. Most of the advertising is on price, although not all is that way.

As for Coke and Pepsi, they compete on the product (or quantity) and this can be done as you say with ad or marketing competition, along with product taste and perception.