Two or more firms competing for differentiation may engage in price wars that drive profits to very low levels.Question 7Select one:TrueFalse

Answer: True

Price wars often occur in markets where firms compete on differentiation. When companies attempt to attract customers by lowering prices, they may inadvertently enter into a competitive struggle that erodes their profit margins. In the quest to outdo one another, firms may significantly reduce prices below profitable levels, leading to a scenario where profits become negligible or unsustainable. This phenomenon can affect not only the companies involved but also their suppliers and employees. Over time, if the price wars continue, it may lead to market consolidation, where weaker firms are forced out of the market, leaving stronger firms to reshape the competitive landscape.