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Figure: Pricing Strategy in Cable TV Market II
-(Figure: Pricing Strategy in Cable TV Market II)Use Figure: Pricing Strategy in Cable TV Market II.If CableNorth followed a high-price strategy one period but found that CableSouth followed a noncooperative low-price strategy,and CableNorth decided to lower prices for the next month,we would say that CableNorth is following a:
A)kinked demand model.
B)dominant strategy.
C)tit-for-tat strategy.
D)collusive strategy.

Question

Use the following to answer question:
Figure: Pricing Strategy in Cable TV Market II 
-(Figure: Pricing Strategy in Cable TV Market II)Use Figure: Pricing Strategy in Cable TV Market II.If CableNorth followed a high-price strategy one period but found that CableSouth followed a noncooperative low-price strategy,and CableNorth decided to lower prices for the next month,we would say that CableNorth is following a:
A)kinked demand model. 
B)dominant strategy. 
C)tit-for-tat strategy. 
D)collusive strategy.

Quizplus · Accepted Answer

CableNorth's decision to lower prices in response to CableSouth's low-price strategy is an example of a tit-for-tat strategy, where a firm matches the action of its competitor. This is not a kinked demand model as it does not involve a specific price point at which demand is more or less elastic, nor is it a dominant strategy as it is not the best option regardless of what the competitor does. It is also not a collusive strategy as the firms are not cooperating to maximize profits.

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