Under what environmental conditions are price wars most likely to occur in an industry?

What are the implications of price wars for a company? How should a company try to deal with the threat of a price war?

The environmental conditions in which price wars are most likely to occur in an industry are the fragmented industry structure and consolidated industries (interdependent companies). The implications for a price war are intense rivalry which occurs when one company makes a move and the others react, this rivalry continues to increase as each company tries to undercut the others price and offer more valuable products, finally resulting in decreased industry profits. The most common way to try and deal with the threat of a price war by seeking to consolidate the industry following the price of the dominant company, however, price-fixing and collusion needs to be avoided (the idea cannot be communicated between companies). Which is more important in explaining the success and failure of companies: strategizing or luck?

Both strategy and luck are undoubtedly important in explaining success and failure. However, although luck may explain a companys success in particular cases, it is an unconvincing explanation for a companys persistent success. Recall our argument that the generic building blocks of competitive advantage are superior productivity, quality, innovation, and customer responsiveness. Keep in mind also that competition is a process in which companies are continually trying to outdo one another in their ability to achieve high productivity, quality, innovation, and customer responsiveness. Given this, although one may imagine a company getting lucky and coming into possession of resources that allow it to achieve excellence in one or more of these dimensions, it is difficult to conceive how sustained excellence in any of these four dimensions could be the product of anything other than conscious effort, that is, of strategy. Luck may play a role in success, as shown in the Strategy in Action 3.5 about the lucky beginnings of Microsoft Corporation, but to argue that success is entirely a matter of luck is to strain credibility. Also, it is clear that lucky opportunities do come along, but only the firms that are prepared to adapt are able to fully exploit those opportunities. When is a companys competitive advantage most likely to endure over time?

The durability of competitive advantage is a function of three main factorsthe height of barriers to imitation, the capability of competitors, and the dynamism of the environment. It follows that a competitive advantage is more durable when barriers to imitation are high, the company lacks capable competitors, and the environment in which it is based is not very dynamic. One should also note that barriers to imitation will be higher when a companys distinctive competencies, and hence competitive advantage, are based on capabilities as opposed to resources. Barriers to imitation will be lowest, and competitive advantage most fleeting, when distinctive competencies are based on tangible resources.

However, nothing lasts forever. Therefore, to maintain its advantage over the long run, a company must embrace the concept of continuous improvement, constantly upgrading its efficiency, quality, and customer responsiveness and constantly seeking innovations, in order to stay one step ahead of its competitors. Strategy implementation is considered the most difficult state in strategic management because it involves change

In order to implement, it is essential that all support given by managers and the workforce when this happens, only then can implementation be possible. Hence, as long as the change is not receptive, implementation cannot take place. Therefore, more time is needed to induce the idea of change and this makes it as the most difficult aspects of Strategic Management. Foreign control is usually more difficult because of

1. Distance it takes more time and expense to communicate 2. Diversity country differences make it hard to compare operations 3. Uncontrollable there are more outside stockholders and governmental dictates 4. Degree of certainty there often is rapid changes in the environment and data problems