In the dominant firm model, the smaller fringe firms behave like:
A) competitive firms.
B) Cournot firms.
C) Stackelberg firms.
D) Bertrand firms.
E) monopolists.

Question

Quizplus · Accepted Answer

In the dominant firm model, the dominant firm acts as a monopolist by setting the price and output in the market, while the fringe firms act as price-takers and adjust their output accordingly. However, the fringe firms cannot collude and act as a single entity due to the antitrust regulations, so they act as competitive firms, trying to capture as much market share as possible by setting prices equal to their marginal costs.

In the Dominant Firm Model, the Smaller Fringe Firms Behave