The payoff to an oligopolist's price cut depends on how its rivals respond.

Question

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The reaction of rivals to an oligopolist's price cut can greatly impact the payoff for the oligopolist. If rival firms match or undercut the price, the payoff may be reduced or eliminated altogether. However, if rivals do not respond or respond with only a partial price cut, the oligopolist may be able to capture a larger market share and increase its profits.

The Payoff to an Oligopolist's Price Cut Depends on How