Avoiding price competition by moving into higher margin products is called margin retreat—a common response to stepped-up competition that eventually leads to corporate suicide. As a company retreats, its costs rise as do its prices, thus “subsidizing” an aggressive competitor’s expansion into the vacated position. The retreating company’s revenue base stops growing and may eventually shrink to the point where it can no longer support the fixed cost of the operation. Retrenchment, restructuring, and further shrinkage follow in a cycle that leads to inevitable extinction.
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