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RESEARCH PRODUCT

Toward an understanding of price wars: Their nature and how they erupt

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Abstract This paper aims to improve our understanding of the unique phenomenon of market competition, called price wars, as little is known about their nature and how they erupt. More precisely, we offer selected illustrations of the reality of price wars, identify key attributes of price wars, propose a definition of price wars, and offer a conceptual framework in which early warning signals (EWSs) of price wars are distilled and linked to the likelihood and the intensity of such wars. Also, initial empirical findings on some of the effects of price wars are offered, showing that price wars inflict substantial damage on the companies involved. Implications for researchers entail that numerous research opportunities exist to better understand price wars and to eventually develop a theory of price wars that may become a vital part of a firm's portfolio of competitive pricing strategies.