Question

Suppose Canon raised the price of its printers, but Hewlett-Packard (the largest seller) refused to follow. Two years later Canon cut its price, and Hewlett-Packard retaliated with an even deeper price cut, which Canon was forced to match. For the next five years, Hewlett-Packard raised its prices five times, and each time Canon followed suit within 24 hours. Does the pricing behavior of these printer industry firms follow the cartel model or the price leadership model? Why?

Answer 1

The pricing behavior of these printer industry firms follows the price leadership model. Hewlett-Packard, as the largest seller, sets the initial price by refusing to follow Canon's price increase. When Canon cuts its price, Hewlett-Packard retaliates with an even deeper price cut, which Canon is then forced to match. This pattern continues with Hewlett-Packard raising its prices and Canon following suit. This indicates that Hewlett-Packard is acting as the price leader, and Canon is adjusting its prices accordingly.