Price wars among firms:
A) Tend to reduce short-run price stickiness because firms know they can lower their own prices without rival firms lowering their prices
B) Occur when one firm lowers its price and rival firms react by lowering their prices
C) Occur when firms use advertising to take customers away from rival firms
D) Have no impact on the degree of short-run price stickiness

Question

Quizplus · Accepted Answer

Price wars occur when one firm lowers its price and then rival firms react by lowering their prices. This often results in a cycle of price decreases until one or more firms reach a point where price cuts are no longer financially feasible. This can lead to reduced short-run price stickiness as firms may be more responsive to changes in market conditions when price wars are occurring.

Price Wars Among Firms