price war

A price war is a downward price spiral caused by market participants systematically undercutting each other’s prices.

It can be the aim of a price war to gain market and customer shares or to force competitors out of the market completely. The crowding-out strategy is often used by large companies against smaller competitors as a demonstration of power since smaller companies do not have enough capital to compensate for the price decline over a longer period of time. One example of a price war that has been going on for years is the competition between the two German food discounters Lidl and Aldi. In general, price wars in the premium segment are less likely than in the low-price segment, since premium providers also risk destroying their own brand image through a price war. Price transparency on the Internet has also led to massive price wars in many industries.