- It is relatively easy for a few firms to coordinate their activities.
- Larger firms have more to lose from destructive price behaviour.
- The fortunes of large firms are more tied to those of the industry as a whole so they are more likely to be wary of the long run impact of a price war on industry economics.
If an industry is relatively fragmented i.e., there is a large number of small firms in the industry, there is relatively high price competition. this is because of the following reasons:
- Firms are unable to monitor their competitors' actions, which make coordination difficult.
- Each firm only has a small share of the market, so a small market share gain (through aggressive pricing) can make a large difference to each firm.
- Each firm is small relative to the overall market so it tends to think of itself individualistically, rather than as a member of a larger group.
There are important exceptions to the rules defined above.
- For example, Boeing and Airbus dominate the aircraft manufacturing industry, but competition between the two remains fierce.