Why are low prices charged in a competitive market?

In a competitive market, businesses strive to attract consumers by offering lower prices, which is a key strategy to expand market share. When a firm charges lower prices than its competitors, it can appeal to price-sensitive customers, leading to increased sales and potentially a larger share of the overall market. This practice, often referred to as "undercutting," helps firms differentiate themselves in a crowded marketplace where multiple producers offer similar products.

While low prices might also impact government revenue, deter new competitors, or be associated with cost reduction, those elements are not the primary motivation in a competitive market structure focused on gaining consumer attention and increasing sales volume. Instead, the goal is to be more attractive to consumers than competing firms, driving down prices to capture additional market share effectively.