Electric Car Price War

The Wall Street Journal reports that General Motors is in a price war with Nissan and Ford in the electric car market.

Texting Competition

The New York Times has an article on the impact that new texting competitor's may have on cellular carriers. It is an interesting way to think about how close substitutes (various text suppliers) impact the price - here for texts. We will be looking at the Bertrand product differentiation model soon, and this is a good example of how prices will converge to marginal costs.

If you missed this - the article claims that the cost of sending a text is 0.33 cents and that can result in a greater than 4000% mark-up.

The Problem with Disequilibrium Prices

During the Fall, Wal-mart and Amazon (along with other retailers) have been engaged in a price war for toys, books and now DVD's (h/t - Jeremy A.). The problem with price wars is that prices tend to be below market equilibrium prices (which is great for purchasers) but not sustainable.

For example, in the book price war, Wal-mart, Amazon and Target are now rationing (yes, rationing) books so that other book sellers will not purchase them at lower unit costs and re-sell the books at more market oriented prices. This is a classic case of arbitrage, which should happen in a competitive marketplace, and something the three amigos should have foresaw before they engaged in the price war.