Consider a firm selling two products, A & B that substitute for each other. Suppose that...
Consider a firm selling two products, A & B that substitute for each other. Suppose that an entrant introduces a product that is identical to product A. What factors do you think will affect (a) Whether a price war is initiated and (b) who wins the price war?
Homework Answers
Given that the incumbent is producing two substitute goods the incumbent has more to lose if a price war erupts. the reason is if the incumbent lowers the price of good A to match the price of the entrants identical offering the incumbent loses revenues on good B as well as on good A because customers who used to purchase good B will substitute toward good A . if exit barriers are minimal the incumbent is more likely to stay and fight if exit barriers are high and./or good A &B are weak substitutes. clearly the proability of a price war decreases if the level of demand for these goods is high relative to the combined capacities of the firm
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Consider a firm selling two products, A & B that substitute
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Q1.1-1.3 1 Bundling Suppose that a firm sells two different goods, A and B to two...
Q1.1-1.3
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Question 11 Suppose that a price-searcher firm had consumers who were all identical to each other....
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Q1.1-1.3
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