Suppose Two Firms in a Duopoly Implicitly Collude and Charge

question 74

Multiple Choice

Suppose two firms in a duopoly implicitly collude and charge a high price.How might each firm benefit from advertising that it will match the lowest price offered by its competitor?

• A)The offer to match prices is a way of deterring entry by other large firms, thereby keeping the market share of the existing firms intact.
• B)The advertisement ensures that the other firm does not cheat. If a firm cheats on the agreement and charges the lower price, the rival firm will retaliate by doing the same.
• C)The offer to match prices is a way of signaling to antitrust authorities that the firms are not engaged in illegal collusion.
• D)The advertisement is meant to suggest to consumers that the offered price is actually the lowest price available.

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Definitions:

Market Revolution

The drastic change in the US economy in the early 19th century characterized by the rapid expansion of capitalism and significant developments in transportation, commercialization, and industrialization.

Economic Leveling

The process or policy aimed at reducing economic inequalities among various groups in a society by redistributing wealth.

Economic Inequality

The disparate allocation of money, resources, and chances for advancement among different people or communities in a society.

Northeast

A geographical region of the United States that includes states in the upper part of the country, characterized by distinct seasons, a diverse economy, and a dense population.