It's straight-forward in introductory economics: a drop in the price of a substitute for good X shifts the demand curve for X to the left and leads to a reduction in the equilibrium price of X. Also if sellers of X anticipate that the prices of substitutes are about to fall, they will likely reduce their prices in anticipation of the drop in the prices of substitutes.
Here is an excellent example: Black Friday. In this case, X represents Canadian retail goods, and the substitute for which prices are dropping is US retail goods.
Today is not a holiday in Canada. We had our Thanksgiving back in early October. But because most of us live within a short drive of the US, many Canadians love to join the frenzy in the US and go shopping for bargains down there.
According to a new poll by Angus Reid for UPS Canada, Canadian retailers can expect to lose one of every five shoppers to U.S. Black Friday-Cyber Monday discounts. Thirty per cent will be shopping for the holidays.
Merchants in Canada are responding by lowering their prices here; they are holding their own "Black Friday" sales, even though today is a regular work day for most of us.
Canadian retailers have good reason to be nervous today as the Black Friday phenomenon in the United States spreads further and runs longer.
Retailers north of the border are offering more of their own Black Friday deals, and more are getting in on the action.
... “If we can provide what [shoppers] are looking for on Thursday, then we may prevent a U.S. shopping trip on Friday, or at least get some of those sales at Sears Canada,” spokesman Vincent Power said.
Okay, you pedants, I realize that retailing isn't perfectly competitive; nevertheless, the supply and demand model works well to explain what is happening in this example.