Consumers and the media love nothing better than a good price war, with competing businesses slugging it out by dropping prices and creating...

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Consumers and the media love nothing better than a good price war, with competing businesses slugging it out by dropping prices and creating better deals for customers.

But in the much-hyped battle between Fidelity Investments and the Vanguard Group — the world’s two largest mutual-fund families — the excitement over reduced expense ratios has overlooked just what this war is about.

Dig behind the headlines, and you find that this battle isn’t so much about Fidelity and Vanguard declaring war on each other as it is about the two firms going after everyone else in the business.

The first shot was fired last fall, when Fidelity lowered fees on its index funds below the level charged by Vanguard, long considered the industry’s low-price leader.

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Vanguard officials responded by noting that the move looked like nothing more than a temporary marketing ploy, and they were right — until Fidelity made the fee cuts permanent.

Vanguard recently fired back, announcing that effective Tuesday, it will lower the entry point to its Admiral share class. Admiral shares carry lower costs but require more-substantial holdings. Once the cut becomes effective, Vanguard will move shareholders with account balances greater than $100,000 into the discounted shares.

The old minimum for Admiral shares was $250,000.

Investors whose Vanguard accounts have been open for more than 10 years, and who have more than $50,000, will also be converted to Vanguard shares, provided they are registered at the firm’s Web site. (Admiral shares are not available in 401(k) and similar retirement plans.)

Though officials insisted the move had been planned for months and was not prompted by Fidelity’s actions, the effect is the same. Throw in some cuts in advisory fees made by the American Funds, the leader among load-fund groups, and the media started talking about a war.

Now comes the part where we dig deeper.

Fidelity’s cuts affect only its index funds, which is not where the company makes its serious bucks. The clear motive for making the move is to bring traditional investors into the firm and then to persuade them to put their actively managed dollars with the firm, too.

Vanguard’s move, meanwhile, affects only about 4 percent of the company’s customers, giving its traditionally cost-conscious customers a reason to ignore Fidelity.

The money involved is not insignificant. Dan Wiener of the Independent Adviser for Vanguard Investors expects that the firm is forgoing $90 million with the change and is worried that the cuts will come out of Vanguard’s shareholder services.

But the bigger likelihood is that both companies will make up lost fee dollars by pulling money from other firms, the real ones being fired on here.

“The price wars really are going to create a two-class system in the mutual-fund industry,” Wiener says. “You will have the Vanguard, Fidelity and T. Rowe Price axis — the big no-load firms with the best cost structures — and then you will have the boutique firms, where people are willing to pay more for a specialty, something they can’t necessarily get from the big guns.”

Between those two camps, you get a lot of fund firms that could be squeezed. As the big firms cut costs, it becomes harder for these firms to make their offerings look like they are worth the additional cost.

Firms that fail to join this battle will wind up perishing within the next decade.

Chuck Jaffe is senior columnist at CBS Marketwatch. He can be reached at jaffe@marketwatch.com or Box 70, Cohasset, MA 02025-0070.