Firms A and B are within an oligopolistic market. Firm A lowers the price for on

Question

Firms A and B are within an oligopolistic market. Firm A lowers the price for one of their goods and in retaliation, Firm B decides to set a policy that will keep the price for one of its goods lower than Firm A's. Based on the given information, which statement is true?

Firm B has higher variable costs.

Firm A will have higher labor costs.

Firm B is engaging in a grim trigger response.

Firm B is engaging in a trembling hand trigger response.

Firms A and B are within an oligopolistic market. Firm A lowers the price for one of their goods and in retaliation, Firm B decides to set a policy that will keep the price for one of its goods lower than Firm A's. Based on the given information, which statement is true?

Firm B has higher variable costs.

Firm A will have higher labor costs.

Firm B is engaging in a grim trigger response.

Firm B is engaging in a trembling hand trigger response.

Explanation / Answer

Answer.) Firm B is engaging in a grim trigger response.

Grim trigger strategy is to lower price to marginal cost indefinitely in response to rival's price cutting in one period.

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