Consider the competition between two nearby retailers selling a homogenous product, such as toilet papers. Both retailers,
Question:
Consider the competition between two nearby retailers selling a homogenous product, such as toilet papers. Both retailers, as well as the product, are expect to exist in the foreseeable future. While some consumers don't mind paying slightly higher price, many consumers will choose the lower price even if it is just one cent lower.
Furthermore, suppose both retailers can adjust their price once a month if they want to. They can observe each other's prices and react when they have a chance. For example, if retailer A observes retailer B changed its price to $X, retailer A can then change its own price to $Y in the following month. Suppose both retailers begin by setting the price as the monopoly price.
Explain what happens to the current month's profit for a retailer when it keeps the monopoly price and undercuts the other retailer by just a bit?
Smith and Roberson Business Law
ISBN: 978-0538473637
15th Edition
Authors: Richard A. Mann, Barry S. Roberts