OK, you own a business...why would you be first to give away money?
Just make sure you save a few dollars for the "Going Out Of Business, Everything Must Go!!!" signs.
OK, you’ve never owned a business in a competitive market.
If it will increase your profit. Lets say that both you and the guy across the street sell a product for $100 that costs both of you $70 wholesale, and that you each sell 100 of them a month. So you're making $3,000 profit on $10,000 sales. Now if you believed that by dropping your price to $95, you could get 75% of the 200 units sold each month, that would amount to $3,750 profit on $14,250 sales.
You might even do a little better, because lowering the price brings in 10 more customers who will buy at $95 but not at $100, and you might be able to make a deal with your wholesaler to get the items for $67.50 because of the increase in your volume. This would net you $4,400 profit on $15,200 sales.
The only thing the guy across the street can do is lower his price to $95 too, or he might even go you one better and cut his price to $92.50. This can go on until the margin is barely enough to cover your overhead or all but one of you decides he's unwilling to sell for less than X profit.
Who said anything about giving away money ? The issue is about dropping PRICES.
You’d only be giving away MONEY if your lower prices failed to increase the QUANTITY of your sales. Sellers in a free market drop their prices to increase market share, and the larger volume at the lower price gets them MORE MONEY, not less. Only through price-collusion can a market comprising many sellers maintain high prices. You can’t stop the other guy from being first to drop prices, which means you have to follow or go out of business.