Cutting prices in a market loaded with excess capacity is MOST likely to result in:
A) a price war.
B) customer resentment.
C) price collusion.
D) government intervention.
E) all of the above

Question

Quizplus · Accepted Answer

When firms cut prices in a market with excess capacity, it is likely that other firms in the market will follow suit in order to stay competitive. This can lead to a price war as each firm tries to undercut the others. Customers may initially benefit from lower prices, but over time, the quality and availability of products and services may suffer due to the pricing pressure. Price collusion would be unlikely in a market with excess capacity as firms are already struggling to maintain their market share. Government intervention may be necessary if the price war leads to anticompetitive behavior or harms consumer welfare.

Cutting Prices in a Market Loaded with Excess Capacity Is