Economics Oligopoly Questions
The price war theory in oligopoly refers to a situation where competing firms engage in aggressive price reductions in order to gain a larger market share or drive competitors out of the market. This strategy involves lowering prices to a level that is unsustainable in the long run, with the aim of creating barriers to entry for new firms and discouraging existing competitors from continuing to operate. Price wars can lead to a decrease in profitability for all firms involved and can have negative consequences for the overall market.