A status quo pricing objective is one that maintains current price levels or meets the price levels of the competition. If the customer has many choices, and a small firm barely has the resources to stay in the market, then they should just charge the same price as the competition. They don't have the resources to survive a price war or the ability to claim better quality to charge a higher price. Price wars are intense competitive rivalries characterized by a multilateral series of price reductions. One competitor will lower its price, then others will lower their prices to match. If one of them reduces their price again, a new round of reductions starts. This is exactly what is happening between Amazon and Walmart , who are locked in a price war with online books.
Walmart Supercenter
Walmart and Amazon are engaged in a price war with online books.
In the short term, price wars are good for consumers, who can take advantage of lower prices. Often they are not good for the companies involved because the lower prices reduce profit margins and can threaten their survival. A small firm can avoid a price war by setting prices in line with its competition. It is best to respond to changes as quickly as possible or else it could signal to competitors that you are ready to engage in a price war. The slower it is done, the more it looks like the firm is attempting to steal back parts of the market share.
Charging what the competition is charging can be quite popular in cases where costs are difficult to measure or where the response of the competition is uncertain. Its major advantage is that it requires little planning, as it's a relatively passive policy. Sometimes companies will send managers or employees to a competitor's store to check out prices and then adjust their prices accordingly. While status quo pricing ensures competition, it's still ultimately a better strategy than engaging in a price war.
An often-cited example of status quo pricing is the soft drink industry. The price of a bottle of soda tends to be fairly consistent, be it a Coca-Cola product or a Pepsi product. Other competitors, with less brand loyalty, may try discounted pricing, but Coca-Cola and Pepsi tend to represent a status quo in pricing.