Apex Products is one of three large firms that together share a major proportion of sales in the U.S. market for metal replacement parts for a certain type of industrial machinery. Consideration of costs along with estimates of the category price elasticity for this type of replacement part indicates that a 12 percent price increase would increase Apex’s profits.
(a) Describe how Apex’s two competitors would respond to Apex’s prospective price increase if they maintained a cooperative stance toward Apex? How would they respond if they held an aggressive stance toward Apex? How would they respond if they held a dismissive stance toward Apex?
(b) Why should the competitive stance of the two competitors in this market affect Apex’s decision concerning whether or not to go ahead with this 12 percent price increase?
(c) What information should Apex take into account to determine the likely response of each competitor? How might it obtain this information?
(d) If Apex plans to proceed with the price increase, what information should it communicate to competitors? How might Apex communicate this information?