Competitors prices and possible price reactors help the firm establish where its prices might be set. The company needs to learn the price and quality of each competitors offer.
Once the company is aware of competitors prices and offers, it can use them as an orienting point for its own pricing. If the firm’s offer is similar to a major competitor’s offer, then the firm will have to price close to the competitors or lose sales. If the firm’s offer is inferior, the firm will not be able to charge more than the competitor. If the firm offer is superior, the firm can charge more than the competitor.