Price wars among ﬁrms
A) tend to reduce short-run price stickiness because ﬁrms know they can lower their own prices without rival ﬁrms lowering their prices.
B) occur when one ﬁrm lowers its price and rival ﬁrms react by lowering their prices.
C) occur when ﬁrms use advertising to take customers away from rival ﬁrms.
D) have no effect on the degree of short-run price stickiness.

Question

Quizplus · Accepted Answer

Price wars among firms occur when one firm lowers its price and rivals react by lowering their prices, leading to a cycle of price reductions. This implies that firms are reactive to each other's pricing decisions and price stickiness may reduce in the short run.

Price Wars Among ﬁRms