If Happy Feet advertises that it will undercut any competitor's price to keep another firm from entering the market, advertising will both increase and decrease Happy Feet's profit.

Question

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By advertising that it will undercut any competitor's price, Happy Feet may discourage other firms from entering the market. This means that Happy Feet will face less competition, which can increase its profit. However, offering lower prices may also mean that Happy Feet is earning less profit per unit sold, which can decrease its overall profit. Furthermore, if Happy Feet's costs are too high to sustain offering lower prices, it may ultimately harm the company's profitability.

If Happy Feet Advertises That It Will Undercut Any Competitor's