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The effect of a price war in a duopoly

Author

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  • Eilon, Samuel

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.

Suggested Citation

  • Eilon, Samuel, 1993. "The effect of a price war in a duopoly," Omega, Elsevier, vol. 21(6), pages 619-627, November.
    • Handle: RePEc:eee:jomega:v:21:y:1993:i:6:p:619-627
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    Cited by:

    1. Niu, Baozhuang & Wang, Yulan & Guo, Pengfei, 2015. "Equilibrium pricing sequence in a co-opetitive supply chain with the ODM as a downstream rival of its OEM," Omega, Elsevier, vol. 57(PB), pages 249-270.

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