Hi there,
Be careful with wording here. Price wars involve lowering prices, but lowering prices don't necessarily involve price wars.
I can lower my price without my competitor following suit.
As such, if you're lowering price to capture market share, always you make sure you analyze/understand the following:
- How many more additional units will get?
- What is the profit and market share result...does it actually result in a net gain?
- This is essentially price elasticity analysis
- Will our competition respond?
- If yes, how, and will that negate our gains
- To determine: analyze their current profit margins, cost structure, behavior, etc. to figure out if they are likely to cut costs (i.e. do they have that trait and can they even physically accomplish this)
Note: plenty of monopolies like Amazon, Facebook, Apple do this regularly. I.e. cut prices, snuff out competition (and/or gain massive economics of scale), then bring prices back up.
Saudi Arabia also did this in 2018/19 (I think these years) to make American shale bleed.
Lots of examples of price cutting being an effective tactic...but it's not a "light" decision to make :)
(edited)