How does competition affect pricing?

How does competition affect pricing in the market?

Competition plays a crucial role in pricing. When multiple businesses offer similar products, they often lower prices to attract customers.

Can you give me an example of this in action?

Sure! For instance, if two coffee shops open near each other, they might lower their prices to gain more customers, leading to a price war.

What happens if one company raises its prices?

If one company raises its prices while competitors keep theirs low, it may lose customers to those competitors unless it offers unique value.

Are there any exceptions to this rule?

Yes, in some cases, premium brands can maintain higher prices due to perceived quality or brand loyalty, even in competitive markets.