On The Issue Of Price Competition In The Theory Of Industrial Organization

The issue of price competition is the main content of Industrial Organization (IO). In the last years, varieties of price-war have been existing in domestic market, of which the trade of color TV is the most serious and frequent one. From 1996, many experts, scholarships and officials have been studying it. And the dominant perspective changed with the different stages which the price-war developed. At the beginning, people usually held the positive attitude toward it. However, more and more people censure it because most of firms, which produce the color TVs, lost money.This article includes five parts. The first part is the basis of the whole paper. I make use of the theory of Industry Organization to analyze the corporate competition in qualitative methods. The second part is the beginning, in which I analyze the social reason why the price-war took place and the phase of the price-war based on what I describe the whole process of price-war. In the third part, I researched the principal reasons which prevent the price-war from growing normally. Moreover, I discuss the non-rational actions of the firms and the high barriers to withdraw of the color TV industry. In the fourth part, I discuss the necessities of the industry to get away from price competition, because the price-war can not realize the project of reorganizing the market structure in short times. The fifth part is the heart of the article, in which I try to help the firms find the methods to walk out from the price-war. I divide the firms into three types and every type should choose different way according to its own characters.In this paper, I adopt the ways combining charts with words so as to make the issue understood more clearly. The object of the article is not to explain the right or wrong of the price-war but to analyze the elements which prevent the price competition from functioning in the development of our market-oriented economy. My way of thought is analyzing what the problem is firstly and the reason secondly. The last is how to solve the problem. The innovations of this article lie in: Firstly, Ithink that the price competition and the non-price competition are two aspects of corporate competition. They exist at the same time. Secondly, the games among the firms have turned into definite with the entry to the WTO, so the Nash Equilibrium of the "prisoner dilemma" is the only equilibrium of firms. Thirdly, I make specific analysis to the non-rational actions. In the end, I employed the A-U model to discuss the technology innovation and divide the firms into different types.