There are several ways to stop a price war before it starts. One is to make sure your competitors understand the rationale behind your pricing policies. In other words, reveal your strategic intentions. Price-matching policies, everyday low pricing, and other public statements may communicate to competitors that you intend to fight a price war using all possible resources. But frequently these declarations about low prices, or about not engaging in price promotions, aren’t low-price strategies at all. Such announcements are simply a way to tell competitors that you prefer to compete on dimensions other than price. When your competitors agree that such competition will be more profitable than competing on price, they’ll tend to go along. Making sure that your competitors know that your costs are low is another option—one that effectively warns them about the potential consequences of a price war. If it has low variable costs, yet its products are relatively high priced compared with those of competitors. Price cuts would be inconsistent with its strategic position of brand differentiation. Rather than use its low-cost structure to compete on price to build market share.
Essentially, a business that has relatively low variable costs enjoys an enviable advantage in a price war since competitors cannot sustain a price below their own variable costs in the long run. But low-cost companies should carefully consider their strategic positions before they start or join a price war. Lower costs often tempt a business to cut its prices, but doing so can diminish consumers’ perceptions of quality and may trigger an unprofitable price war.