Question

Can a threat of a price war deter entry by potential competitors? What actions might a firm take to make this threat credible?

Answer 1

If there is a threat of price war then the company can prevent the market analysis because of the fact that there is always a chance that the average variable cost for the product is then price preferred by the competitor as a result of which the company out of the market and this is the case of price war as a result of which understanding the situation, it can be observed that there are methods in which a firm can take proper action to make the threat credible and this is actually by understanding the price structure of the market and the sensitivity of the market to the price as a result of which one can directly involve promotional tools such as discounts that can reduce the price to a great extent so that the threat would be credible