Two pizza parlors are located within a few feet of each other on the Avenue of the
Question:
Two pizza parlors are located within a few feet of each other on the Avenue of the Americas in New York City. Both were selling a slice of pizza for $1 (Matt Flegenheimer, “$1 Pizza Slice Is Back After a Sidewalk Showdown Ends Two Parlors’ Price War,” New York Times, September 5, 2012). Then, Bombay Fast Food/6th Ave. Pizza lowered its price to 79¢. The next morning, 2 Bros. Pizza dropped its price to 75¢, which Bombay quickly matched. These price cuts led to long lines of customers. However, both firms claimed that they were losing money. The two proprietors had a meeting on the sidewalk in front of their restaurants. According to one, they reached an agreement and raised their prices back to a dollar. Can the identical-goods, Bertrand, or cartel models be used to explain this series of events? Why or why not?
Step by Step Answer:
A Bertrand equilibrium or NashBertrand equilibrium is a set of prices such that no firm can obtain h...View the full answer
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