Question

there are several forms of "pre-play" communication that help facilitate collusion in the price-setting game. One is called trigger-pricing while another is called a low-price guarantee. Choose one of these pricing strategies, and discuss exactly how a firm would use it in practice.

Answer 1

A firm can use a low-price guarantee as a pricing strategy to facilitate collusion in a price-setting game.

Step-by-step explanation:

One pricing strategy that can facilitate collusion in a price-setting game is a low-price guarantee. With a low-price guarantee, a firm promises to match or beat any lower price offered by its competitors. This strategy helps the firm maintain market share and prevents other firms from undercutting its prices.

In practice, the firm would advertise the low-price guarantee to attract customers. If a competitor offers a lower price, the firm would honor its guarantee by lowering its own price to match or beat the competitor's price. This ensures that customers perceive the firm as offering the best prices and discourages other firms from engaging in price competition.