Under competitive pricing, when firms follow suit after a competitor has lowered its price, the price cut will leave all competitors with less revenue unless the lower price attracts new customers and expands the overall market enough to offset the per-unit loss of revenue.

Question

Quizplus · Accepted Answer

In competitive pricing, if all firms lower their prices following a competitor's lead without attracting new customers or expanding the market, they will indeed earn less revenue per unit sold. The strategy only increases overall revenue if the lower prices significantly boost demand or expand the market size.

Under Competitive Pricing, When Firms Follow Suit After a Competitor