Comm 486

http://www.newyorker.com/talk/financial/2009/11/09/091109ta_talk_surowiecki

A price war is often counterproductive for any company that  chooses to take part in it. It is a classic example of game theory where all parties are worse off than they were before the price war started. Usually, the only way to win a price war is to not start one at all. After studying micro economics in Professor Gateman’s class I concluded that the use of cartels and collusion is the way to prevent price wars. 

Even though precautions like cartels take place price wars seem to start somehow. For example, Wal-Mart and Amazon had a price war over books. The price war was in now way a significant loss for either companies, rather they slashed prices to gain the attention of potential customers to become exposed to their website. In a sense they used their price war as a marketing and exposure strategy.

Personally, this is an extremely clever idea because the potential exposure may lead to impulse buys that will eventually counter balance the small losses on the price war. Furthermore, the price war is more so a long term investment in the company. There are always risks involved, but the decision to go forth with a price war is an extremely well calculated risk. Amazon and Wal-Mart will become a more prominent place to shop because of the attention they both received from slashing prices, which usually leads to a decrease in sales.