Target executives believe that if they raise prices, then customers will switch to shopping at Walmart across the street. However, if they decrease their prices, then Walmart will respond by decreasing their own prices, with no customers switching from Walmart to Target. This scenario implies that
A) Target should decrease its prices in an effort to drive Walmart out of business.
B) prices charged by both retailers will be relatively stable.
C) both retailers are locked in destructive competition.
D) Target should not have a pricing strategy.

Question

Quizplus · Accepted Answer

This scenario suggests that any significant price changes by Target could lead to a price war with Walmart, with neither side gaining a significant advantage in attracting customers based on price changes alone. This implies a situation where prices between the two competitors would likely remain stable to avoid mutually detrimental outcomes.

Target Executives Believe That If They Raise Prices, Then Customers