Your client, Wall Inc., is a dry wall manufacturer. A new competitor has just entered the market. Since the competitor charges low price company, Wall Inc. is thinking about reducing its price by 20%. The client wants us to evaluate this plan.
The client should NOTreduce the price because it will lead to a loss in profit that is equivalent to losing 33% of market share.
So far, it seems that the new competitor will take a maximum of 3% of the client’smarketshare.
There are two possible risks though:
We could have underestimated the size of the new competitor.
One of our bigger competitors could reduce their price in response to the new competitor’s low prices.
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