Price Warfare in Business Competition: A Study of Abnormal Competitive Behavior

By Ralph Cassady | Go to book overview

CHAPTER V
SOME THEORETICAL ASPECTS OF PRICE WARFARE

Economic theory, which is mainly concerned with normal competitive behavior, has little to say about price warfare.1 Empirical studies of the type discussed in the two preceding chapters serve a double purpose of providing realistic data concerning particular market behavior situations and of providing a basis for some theorizing. General or abstract principles are particularly important in this paper since this is intended to be a climactic presentation of the author's studies of price warfare.


CONDITIONS CONDUCIVE TO PRICE WARFARE

Price warfare is, as has been pointed out, an abnormal type of competitive behavior and its occurrence in any field is infrequent enough for it to serve as a basis for a news item. But price wars do occur, occasionally at least, in certain fields, at certain distribution levels, and, in fact, are quite common in at least one product area, gasoline distribution. The question is: Can one draw any inferences from the empirical study regarding the prevalence of price warfare?

In considering this question, it might be well at the outset to review the merchandise fields in which intensive price disturbances, have occurred over the years. These include bread, cement, drug store items, dry groceries, poker parlor meals, gasoline, greengroceries, and milk, all of which have been discussed above, as well as others, such as alcoholic beverage,2 books,3 chewing tobacco,4 cigarettes (retail),5 dry cleaning service,6 barber service,7 home appliances,8 motel rooms,9 railway rates,10 silk prints,11 and taxicab service,12 not included in this study.13

Some of these, note, are multiproduct lines and some involve only single items. In the case of the former, wars usually revolve around a limited number of fast moving items such as margarine, coffee, or hamburger. Moreover, price wars seem to be confined mainly to oligopolistic conditions in relevant segments of the market, although this conclusion may not be too significant in view of the fact

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