Competition among businesses can sometimes escalate into price wars, where companies continuously lower prices to undercut their rivals and capture a larger share of the market. While price wars may seem beneficial to consumers in the short term, they can lead to unsustainable business practices, reduced profit margins, and even market failures. This project challenges students to simulate a price war experiment to explore how businesses adjust their prices in competitive environments and how this impacts market equilibrium.

Students will design an experiment that mimics a competitive marketplace. They can create a simulated business scenario where multiple firms compete to sell a similar product—such as coffee, sneakers, or smartphones. Participants will act as business owners, making strategic pricing decisions while reacting to the pricing strategies of their competitors. As prices fluctuate, they will track how changes in price affect demand, supply, and profitability, identifying when businesses reach a breaking point where lowering prices further becomes unprofitable or unsustainable.

To enhance their analysis, students should examine real-world examples of price wars, such as gasoline companies, airline ticket pricing, or fast-food chain competition. They should investigate whether companies eventually raise prices again or whether aggressive discounting permanently alters the market landscape. Additionally, they should consider the role of price elasticity—if a product has many substitutes, a small price drop could significantly increase demand, but if it is a necessity, price changes may have a weaker effect.

The final output will be a detailed experiment report that documents their findings, explaining how their simulated price war affected market equilibrium and whether it mirrored real-world economic scenarios. The goal of this project is to help students understand how businesses navigate pricing strategies, the risks involved in price wars, and how equilibrium prices fluctuate based on competitive pressures.