Tuesday, September 28, 2010

The Dangers of Price Competition

One of the topics I discuss in some of the economics courses I teach - such as Industry Analysis - is the impact on firms from price competition. When a number of firms produce highly substitutable products and compete on price, they have a harder time maintaining profitability and also start training their customers to become more price sensitive (price elastic). Here is an excellent article discussing the same thing in regard to the price discounting and a decrease in demand.

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