Excerpts from an article by Z. John Zhang and Dongsheng Zhou.
“A price war is something to be avoided in the West. However, Chinese companies have earned a reputation for starting price wars. Many US companies know too well that the first sight of a Chinese company in a US market means a price war is coming: it always offers a price that is 30-50% lower than its closest competition (BusinessWeek 2004). By now, many US companies have a taste of that terrifying ‘China Price’. Many practitioners and experts question the rationality for Chinese companies to start price wars. ‘Why can’t they just lower the price by 10% or even 20%’, many wonder aloud. ‘That way, they can still keep their damned price advantage and do much better for themselves, too?’
In the West, academic researchers and practitioners alike know that the outbreak of a price war means disastrous consequences for firms involved and hence they all view price wars in an industry as the failure of managerial rationality. A Fortune magazine article captures this prevailing view accurately. ‘What are price wars good for?’ the article asks (Henderson, 1997). In the same breath, the author answers the question definitively: ‘Absolutely nothing’. If price wars are good for ‘absolutely nothing’, of course, no firm should ever initiate them.”
In spite of all this, some Chinese companies make use of Price Was as a deliberate strategic weapon . . .