Competitor launches a better product at lower price. How do you respond?

I think this is one of those rules of economics that holds true until most people start believing it. The thing is, most businesspeople and investors agree with you; they run in terror from any business where price has anything to do with the costs involved.

This means that the market is pretty much wide open. /especially/ if you have technical skill laying about and are willing to give it a go without investors or MBAs.

I mean, right now my customers are overlooking the fact that I lack some of the important features my competition has /and/ overlooking my horrible marketing, in exchange for around half off. I'm profitably out-competing absolutely huge companies on price, in a market that is generally considered to have large 'economies of scale' effects.

I think the thing is that larger companies don't want this part of the market, because if they lent their credibility to the low end, they'd cannibalize their own higher-margin products. And smaller companies, well, they usually need investment, and investors generally run screaming from any business where profits are directly tied to costs.