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:

Elbow

The elbow is a joint connecting the forearm to the upper arm, allowing for the bending and straightening of the arm.

Styloid Process

The styloid process is a slender, pointed projection of bone that extends from the temporal bone of the skull, where it serves as a point of attachment for muscles associated with the tongue and throat.

Radius

One of the two main bones of the forearm, situated on the lateral side (thumb side) of the arm and plays a crucial role in wrist movement.

Ulna

A long bone in the forearm that runs from the elbow to the smallest finger, forming the elbow joint with the humerus.