ipl-logo

Price Wars: Strategic Interaction In Business

777 Words4 Pages

Strategic interaction in business – Price wars

One, if not the main objective of all companies is to attract as many customers as possible by differentiating itself from its competitors. To do so, they use many different strategies to outdo their competitors. Cutting prices is one of them. They must be careful, reducing prices may provoke a price war between the firm and its competitors. This means that when one lowers its prices to try to steal the other’s market share, the other will respond by reducing its price even more to stay in competition. Both firms enter a vicious circle, from which buyers benefit, but may be fatal for the companies involved. Thus a firm must take into consideration present as well as future gains and losses when …show more content…

Fare wars have become an important aspect of their industry and have altered the well being of both workers and travelers. According to several studies, fare wars have reduced industry profits by nearly $8 billion, from 1979 to 1995, however they have also been a great source of benefits for travelers. Fare wars definitely shortened the overall industry profits and contribute to their inconstancy. For example, when American Airlines, Northwest Airlines, and other U.S. carriers engaged in fare war by overtaking one another’s lowered prices it resulted in record volumes of air travel and record losses. According to some estimation, the total losses the industry went through that year exceeded the joined profits for the entire industry from its …show more content…

It involves two individuals who have committed a crime and are left with two options, confess or deny. While making this decision they cannot communicate to each other. If they both tell the truth they will get a rather short sentence. If only one confesses the other will get a relatively long sentence while he will be free. If both remain silent, they will both get a very short sentence. According to this principle, both prisoners will try to anticipate the other’s decision and react according to it, which in all cases will lead to a confession from both of them.

The two possible outcomes in the Prisoner’s Dilemma of the airline companies are to cooperate or not. If both choose to be cooperative then the situation will be profitable for both, conversely if they chose to compete then they will both lose. The obstacle in this situation is that it is profitable for both firms to set high price but if each individual firm try to maximize its own profit it will be tempted to set a low price hoping that its competitor will sets a high price. It can therefor be concluded that communication and consideration of mutual benefits are the keys to the potential gains of

Show More
Related

  • Big Business In America Dbq Essay

    1432 Words  | 6 Pages

    When there was another smaller company entered the industry of one of the big businesses they would most likely charge lower prices in order to compete with the bigger companies. If the smaller business ever got to the point where they were stealing too many customers from the big business, the big business would be forced to drive them out of business. They did this by dramatically lower their prices to a level so low that the smaller company would no longer be profiting if they tried going any lower. The large company would be fine because they had already vertically integrated all other aspects

    Read More

  • Swot Analysis Of Air Canada

    1235 Words  | 5 Pages

    The competition between Air Canada, a traditional carrier, and West Jet, low cost carrier is rigorous in Canadian airline industry. Though Air Canada is Canada’s domestic and international airline and has dominant hold in the Canadian market, West jet is giving the airline tough competition with its effective price point, profitable routes with greater focus on domestic market. The rivalry competition is moderate to

    Read More

  • Pantry Case Study Summary

    3865 Words  | 16 Pages

    6 Bargaining Power of Buyers…………………………………………………………….. Bargaining Power of Suppliers…………………………………………………………... Threat of Substitutes……………………………………………………………………... Financial Analysis Balance Sheet………………………………………………………………………… Income Statement……………………………………………………………………… Dupont Analysis………………………………………………………………………. Liquidity Ratio…………………………………………………………………………

    Read More

  • Sir Robert Peel Principles In Law Enforcement

    1207 Words  | 5 Pages

    The principles of Sir Robert Peel are important for America today, and help shape todays modern police forces. Peels principles help keep order and peace to the police force of America. Peel drafted one of the first police bills in 1828, to improve the police in the Metropolis, it was passed in 1829 ( ). There are nine total principles in total that help guide the law enforcement. The first principle describes the basic mission to why police exist.

    Read More

  • Pricing Strategy And The Pricing Strategy: Dyson

    1009 Words  | 5 Pages

    4.4 Pricing Strategy For a number of reasons, price is one of the most important aspects of an effective marketing strategy (Gerstein & Friedman, 2015). First, price is the only marketing variable that generates revenue. Second, buyers see price as an attribute of value (Tanner & Raymond, n.d.). Consequently, an organization must carefully assess its internal and external environment to choose the most effective pricing objective, which—in turn—will drive a product’s initial pricing strategy.

    Read More

  • Advantages Of Oligopolistic Market

    721 Words  | 3 Pages

    Furthermore, customers may find lower prices or higher discounts with a small number of firms in the oligopolistic market. The others will also cut prices to prevent losing their market share when a business started to cut down its price. Firms might have to sacrifice some profits in order to keep customers or reduce the rivals while lower prices to benefit consumers. For example, customers can find discounted air fares which allow them to enjoy the best flight deals with Air Asia.

    Read More

  • The External Environment In The Airline Industry

    1563 Words  | 7 Pages

    bargaining power of buyers in the industry is high due strong as low switching costs and plethora of options in the market. Now, e-ticketing has improved the chance and flexibility to search for different airlines companies leading to down word cost pulls and upward services push. Furthermore, it eases of switching between different airlines companies. Therefore, for airlines they need to keep customers in the fold by providing air miles system to gain customers' attention and retain them.

    Read More

  • Holiday Inn: Porter's Five Forces Of Industry

    1384 Words  | 6 Pages

    Social Growing competition and capacity amongst airlines, lower air fares and more relaxed travel restrictions in many regions have made international travel a viable option for an increasing number of people coming to

    Read More

  • Price Discrimination In Hotel Industry

    777 Words  | 4 Pages

    In short, lower prices are offered to consumers, who might not be able to afford a higher price, thus attracting more visitors and raising the profits. Let’s take a look at the graph below. Output is Y number of hotel rooms booked at price P. D1 is demanded by adults, D2 – by seniors. If suppliers charge price P1 for all the rooms, they are only targeting one segment and quantity sold will be Y1. However, by charging a different price P2 to different customers, suppliers now target two segments, so the total revenue will now be P1*Y1+P2*Y2, which is obviously a better option for suppliers than just

    Read More

  • Business Strategy Case Study: Delta Airlines

    742 Words  | 3 Pages

    • Threat of substitute goods: Threat of substitute good is high in this industry. If a private company or government introduces any fast road transportation services in the United States, then traveling through airline can reduce. Air travel is somehow costlier than road transport. If the same kind of leisure will be provided in public transport with greater speed, then the share of airline industry can decline. This threat can be reduced if their products offer more value than other substitute

    Read More

  • Strategic Management: Strategies, Deliberate Or Emergent

    3600 Words  | 15 Pages

    With a rise in fuel prices and environmental factors (such as terrorist threats) reducing air travel, airlines continue to struggle. In union environments, where staff (like pilots and flight attendance) is heavily unionized, the industry has not been able to cut their labor costs. New low-cost industry entrants are adding to the pressure the traditional

    Read More

  • Value Proposition Of Fitbit

    1808 Words  | 8 Pages

    The pricing strategy or pricing policy is one of the most important managers make for a product as it affects the profitable outcome and competitiveness that a product may make. (Toni, 2017). A business can use a variety of pricing strategies when selling a product or service. The price can be set to maximize profitability for each unit sold or from the market overall. It can also be used to defend an existing market from new entrants, to increase market share within a market or to enter a new market by dropping the price or offering more benefits with the device such as packages.

    Read More

  • Coke And Pepsi Case Study

    1101 Words  | 5 Pages

    Hence we assume this to be a situation of duopoly. The 2 companies sell products which are very close substitutes and are constantly fighting for greater market share. A person may buy a Coke product instead of a Pepsi one, and vice versa. The objective of both is to maximize their profit.

    Read More

  • SWOT Analysis Of Flydubai: Low Fist Airlines

    1467 Words  | 6 Pages

    For instance, with the global financial crisis and later the Eurozone crisis, the number of travellers has significantly reduced due to economic hardships. This has affected the profit levels of the airline as well as slowed down its growth prospects. The airline also faces intense competition from other low cost airlines forcing it to extensively invest in product differentiation to counter the competition. This is an expensive

    Read More

  • Oligopoly Case Study

    1870 Words  | 8 Pages

    This brings them to either compete with each other or to engage in collusions, which is to club together to maximise own profits, like a win-win

    Read More

More about Price Wars: Strategic Interaction In Business

Open Document