It seemed intuitive to me that if I had a lot invested in creating a product or service, I would want to keep prices high for as long as possible. However, if I entered a market with gaining market share as a primary goal, then (under some conditions) I would enter with low prices, and penetrate the market. But if an incumbent matches my lower price, what would I do?

Before taking microeconomics last year and now Pricing with Prof. Wasim Azhar, I would have not lowered my price even further to keep alive the dream of breaking-even some day on all of my investment. However, the notion of ‘sunk’ costs would dictate that I consider lowering prices even further to attain my primary goal of gaining market share. The large sunk costs have created an ‘exit barrier’ for me. A price war would result, one that would hurt both players and eventually the market itself.