Firms tend to raise the price of their goods after acquiring a firm that sells a substitute because
A)They lose market power
B)There is an increase in the overall demand for their products
C)The bundle has a more elastic demand than individual goods
D)The bundle has a more inelastic demand than individual goods

Question

​Firms tend to raise the price of their goods after acquiring a firm that sells a substitute because
A)​They lose market power
B)There is an increase in the overall demand for their products
C)The bundle has a more elastic demand than individual goods
D)​The bundle has a more inelastic demand than individual goods

Quizplus · Accepted Answer

When a firm acquires a substitute, it reduces the degree of competition and increases its market power. This makes the demand for the bundle of goods more inelastic compared to when the goods were sold separately. As a result, the firm can increase the price without fear of losing too many customers.

​Firms Tend to Raise the Price of Their Goods After

Firms Tend to Raise the Price of Their Goods After