If two firms expect to be in the market together for a long time, the benefit of underpricing will be large relative to the cost.

Question

Quizplus · Accepted Answer

When two firms expect to be in the market together for a long time, they are more likely to engage in cooperative behavior, such as maintaining stable prices, to avoid price wars that can erode profits over the long term. Underpricing can lead to a short-term gain at the expense of long-term profitability and stability.

If Two Firms Expect to Be in the Market Together