With the recent Amazon–Walmart price war on books and the 1992 air­line indus­try price war as the back­drop, James Surowiecki takes a look at how price wars start, how they can be avoided, and how to (pos­si­bly) win at them.

The best way to win a price war, then, is not to play in the first place. Instead, you can com­pete in other areas: cus­tomer ser­vice or qual­ity. Or you can col­lude with your puta­tive com­peti­tors: that’s why car­tels like OPEC exist. Or—since overt col­lu­sion is usu­ally illegal—you can employ sub­tler tac­tics (which econ­o­mists call “sig­nalling”), like mak­ing pub­lic state­ments about the impor­tance of “sta­ble pric­ing.” The idea is to let your com­peti­tors know that you’re not eager to slash prices—but that, if a price war does start, you’ll fight to the bit­ter end. One way to estab­lish that peace-preserving threat of mutual assured destruc­tion is to com­mit your­self before­hand, which helps explain why so many retail­ers promise to match any competitor’s adver­tised price. Con­sumers view these guar­an­tees as con­ducive to lower prices. But in fact offer­ing a price-matching guar­an­tee should make it less likely that com­peti­tors will slash prices, since they know that any cuts they make will imme­di­ately be matched. It’s the retail ver­sion of the dooms­day machine.

These tac­tics and deter­rents don’t always work, though, which is why price wars keep break­ing out.

Surowiecki men­tions that there’s appar­ently a big banana price war going on in the U.K. at the moment! News to me.