What Is the Potential Drawback If Firms Follow a Price

question 34

Multiple Choice

What is the potential drawback if firms follow a price leadership model in an actual market?

• A) The price leader's behavior may be interpreted as collusion and be subject to antitrust sanctions.
• B) Excessive price signalling may force all of the firms to adopt price-taking strategies, which reduces overall profits among the firms.
• C) Disputes about which firm should be the price leader may lead to price wars.
• D) Signalling efforts increase the firms' fixed costs of production.

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Definitions:

Adjustable-peg Mechanism

A method used in international monetary systems where a country's exchange rate is periodically adjusted within a band or in response to specific indicators.

Common Currency

A currency that is used by multiple countries, simplifying trade and financial transactions between them, with the Euro being one of the most notable examples.

External Adjustment

The process by which an economy corrects imbalances in its balance of payments, through changes in exchange rates, demand, and supply in foreign exchange markets.