What circumstances lead companies to initiate price cuts, and what are the traps that companies can fall into if they do?

What will be an ideal response?

Several circumstances prompt a firm to cut its prices. One is excess plant capacity: the firm needs additional business and cannot generate it through increased sales effort, product improvement, or other measures. Companies sometimes initiate price cuts in a drive to dominate the market through lower costs. Either the company starts with lower costs than its competitors, or it initiates price cuts in the hope of gaining market share and lower costs.
Cutting prices often encourages customers to demand price concessions and trains salespeople to offer them. In addition, consumers might assume quality is low. A low price buys market share but not market loyalty. Higher-priced competitors match the lower prices but have longer staying power because of deeper cash reserves. Finally, lowering prices might trigger a price war.