ABSTRACT
If a firm lowers its price, will it sell more? For years, Economics 101 has taught us that if a firm lowers its price, more
people will buy and sales will increase. Yet much of the time this is simply not true. Although individual products have price elasticity, at many stages of its life cycle
a product is not highly price elastic. At these stages, lowering prices generates little new demand – and it can trigger a price war. Failure to understand clearly when and when not to lower price, or to factor in how competitors will respond, is at the heart of two of the pricing traps this chapter addresses:
• “If we lower our price, we will gain share.” • “We should drop our price to win this deal.”
