(Figure: Oligopoly Pricing Strategy in Wireless TV Market II) Use Figure: Oligopoly Pricing Strategy in Wireless TV Market II. The BEST response for Next Wireless:

A)is to charge a high price.
B)is to charge a low price.
C)is to charge what Sling does.
D)does not exist.

Question

(Figure: Oligopoly Pricing Strategy in Wireless TV Market II) Use Figure: Oligopoly Pricing Strategy in Wireless TV Market II. The BEST response for Next Wireless:
​
 
A)is to charge a high price. 
B)is to charge a low price. 
C)is to charge what Sling does. 
D)does not exist.

Quizplus · Accepted Answer

In an oligopoly where there are only a few major competitors, the best response strategy is to charge a lower price than the other competitors in order to gain market share. This is depicted in the graph where Next Wireless's profit-maximizing output level is where its marginal revenue curve intersects with its marginal cost curve. At this output level, Next Wireless is charging a lower price than Sling and DirecTV, but still able to make a profit. Therefore, the best response for Next Wireless is to charge a low price.