Assume that Hines Corporation and Lamb Inc. ,each produce a homogeneous product and that the two firms are the only two sellers in the market.The two firms have agreed to a collusive price agreement and expect demand and cost conditions to remain unchanged over time.If the pricing game is repeated indefinitely and Hines knows that Lamb is playing a tit-for-tat strategy,then Hines' best strategy is to:
A)cut price in every period.
B)cut price in alternate periods.
C)comply with the agreement.
D)increase price in alternative periods.

Question

Quizplus · Accepted Answer

Hines' best strategy in this situation is to comply with the price agreement, as Lamb is playing a tit-for-tat strategy. This means that Lamb will match any price cut by Hines, but also match any price increase by Hines. Therefore, the best outcome for Hines is to maintain the agreed-upon price and avoid triggering any retaliation from Lamb by deviating from the agreement.

Assume That Hines Corporation and Lamb Inc