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Figure: Pricing Strategy in Cable TV Market I
-(Figure: Pricing Strategy in Cable TV Market I) Look at the figure Pricing Strategy in Cable TV Market I. If both CableNorth and CableSouth advertise, then without any collusion:
A) CableNorth will stop advertising to maximize profits.
B) CableSouth will stop advertising to maximize profits.
C) there will be no tendency for either CableNorth or CableSouth to stop advertising.
D) there is a tendency for both CableNorth and CableSouth to stop advertising.

Question

Use the following to answer questions:
Figure: Pricing Strategy in Cable TV Market I 
-(Figure: Pricing Strategy in Cable TV Market I) Look at the figure Pricing Strategy in Cable TV Market I. If both CableNorth and CableSouth advertise, then without any collusion:
A) CableNorth will stop advertising to maximize profits. 
B) CableSouth will stop advertising to maximize profits. 
C) there will be no tendency for either CableNorth or CableSouth to stop advertising. 
D) there is a tendency for both CableNorth and CableSouth to stop advertising.

Quizplus · Accepted Answer

In a competitive market, if both companies are advertising, they are likely in a Nash equilibrium where neither has an incentive to unilaterally stop advertising, as doing so could lead to a loss in market share and profits.

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