Question

Here to There and Zippy are both ride-sharing services that serve the same metro area. They have never directly negotiated with each other, but they keep an eye on each other's business and tend to charge similar rates for their services. This is an example of:

a.uncertainty reduction.
b.explicit collusion.
c collusion.
d forbearance.

Answer 1

Here to There and Zippy exemplify forbearance, a form of implicit collusion where businesses adjust their rates in response to each other's pricing, without an explicit agreement, to maintain similar rates and avoid a price war.

Step-by-step explanation:

The behavior of 'Here to There' and 'Zippy' constitutes forbearance, which is a type of implicit collusion. These companies engage in a form of non-cooperative behavior, where, without an explicit agreement, they monitor each other's pricing and adjust their rates to maintain a similar pricing structure. This is not explicit collusion, where there would be a negotiated agreement between the companies to set prices or market shares. Unlike the airline scenario provided, where predatory pricing is used to push out competition, the ride-sharing services are not acting aggressively to eliminate competition but rather are maintaining a status quo to prevent a price war between them.

In the airline example, a large incumbent firm attempts to drive out a new competitor by slashing prices, a tactic known as predatory pricing, which differs from the behavior of Here to There and Zippy. In comparison, Greyhound Lines, Inc. and Trailways Transportation System would prefer a broader market definition to present a less concentrated market scenario to regulators, emphasizing competition from a variety of other intercity transportation modes.