Chapter0203 - Chapter 2 Question 1 Under what environmental conditions are price wars most likely to occur in an industry Refer to

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Chapter 2 Question 1 Under what environmental conditions are price wars most likely to occur in an industry? Refer to http://students.washington.edu/rushika/ind%20analysis.doc Price wars will most likely occur under the following conditions in an industry: a. Product commoditization. b. Substantial exit barriers. c. Excess capacity. d. Industry consolidation. e. Declining demand. The convergence of all these conditions makes a severe price war likely. Competition tends to focus on price since commoditization makes it difficult for companies to build brand loyalty. Companies find it difficult to eliminate excess capacity because high exit barriers make plant closings onerous. The persistent excess capacity drives price cuts as companies attempt to create the demand needed to reach their ideal capacity and cover fixed costs. Interdependence in a consolidated industry suggests that one company's price cuts will produce a downward spiral of prices from its rivals. Finally, declining demand produces excess capacity and sparks the initial
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This note was uploaded on 05/12/2010 for the course MAN 6721 taught by Professor Kraft during the Spring '10 term at University of Florida.

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Chapter0203 - Chapter 2 Question 1 Under what environmental conditions are price wars most likely to occur in an industry Refer to

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