Suppose Two Firms in a Duopoly Implicitly Collude and Charge

question 144

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 signalling 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:

Pinnae

The visible part of the ear that protrudes from each side of the head, playing a role in collecting sound vibrations and directing them into the ear canal.

Inner Ear

A complex structure deep within the ear responsible for hearing and balance, containing the cochlea and vestibular system.

Cochlea

A spiral-shaped cavity in the inner ear that plays a key role in the sense of hearing by converting sound vibrations into nerve impulses.

Decibel

A unit of measurement for sound intensity, often used to describe sound levels in various environments.