The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2

-Which of the following is true of price leadership?
A)Price leadership requires that firms collude.
B)Price leadership will not exist when there is a dominant firm.
C)Price leadership may come into being as firms recognize the benefits of not engaging in competitive pricing.
D)Price leadership is most likely to arise when no firm has a history of making accurate evaluations of market conditions.
E)Price leadership is never used in the real world.

Question

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2
 
-Which of the following is true of price leadership?
A)Price leadership requires that firms collude. 
B)Price leadership will not exist when there is a dominant firm. 
C)Price leadership may come into being as firms recognize the benefits of not engaging in competitive pricing. 
D)Price leadership is most likely to arise when no firm has a history of making accurate evaluations of market conditions. 
E)Price leadership is never used in the real world.

Quizplus · Accepted Answer

Price leadership can arise when firms recognize the benefits of not engaging in competitive pricing. It does not necessarily require collusion or the absence of a dominant firm. Price leadership is a commonly used strategy in the real world, where one firm sets the price and others follow suit. However, price leadership may not be effective if one firm has a history of making accurate evaluations of market conditions and can better predict optimal pricing strategies.

The Table Below Shows the Payoff (Profit) Matrix of Firm