? Price wars are bad, especially with high fixed costs. ? They reduce current profits and erode customers’ perception of product quality. ? Price wars are not inevitable. For example, the French and the Germans fight every fifty years but not every year. ? But collusion is illegal. ? Of course predatory pricing is illegal too. ? Differentiation reduces price sensitivity and thus the temptation to start a price war. ? Differentiation of products starts with segmentation of customers. ? Products may be differentiated in quality or variety. ? Even if the base product is homogeneous, it may be bundled with a differentiated “product”. ? If you differentiate by bundling; the design of the bundle should depend on your resources. ? Bundle with your strong resources – unless you risk destroying them in the process ? Use advertising to create additional differentiation, still based on your resources. ? Price discrimination is a very common practice ? Some versions are illegal ? Effective 3 rd degree price discrimination can make a lot of money in a lot of industries -airlines: classes, times -grocery coupons -quality-tiered products