The effect of a price war in a duopoly

Samuel Eilon

Omega, 1993, vol. 21, issue 6, 619-627

Abstract: When two competitors dominate a given market, there is always a temptation for one competitor to cut the price in order to improve his/her performance, for example to capture a higher market share and increase revenue. The result of such action affects the volume sold by the other competitor, who then takes retaliatory action. After a succession of actions and reactions of this kind, a new equilibrium between the two competitors is arrived at. The paper explores the results obtained when the competitors seek three alternative performance criteria: to maximize revenue, profit or profit margin. Circumstances are highlighted under which competing strategies can lead to a deterioration in performance for both competitors.

Keywords: corporate; performance; incremental; analysis; price; war; competition; duopoly (search for similar items in EconPapers)
Date: 1993
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