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:

Speakers

Devices that convert electrical audio signals into sound waves, enabling the playback of music, speech, and other sounds.

Interactive Whiteboards

Digital display boards that respond to user input either through touch or specialized pens, used in educational and corporate settings.

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A visual way of interacting with a computer using items like windows, icons, and menus, intended to make software easier to use.

Operating System

A software that manages the hardware and software resources of a computer and provides common services for computer programs.