Question

Bert and Ernie are non-colluding oligopolists. If both choose a high price strategy, each makes $40 in profits; if both choose a low price strategy, each makes $30 in profits. If Bert chooses a high price strategy and Ernie chooses a low price strategy, Bert makes $20 in profits and Ernie makes $60 in profits, while if Bert chooses a low price strategy and Ernie chooses a high price strategy, Bert makes $60 in profits and Ernie makes $20 in profits. Which combination of pricing strategies would you expect Bert and Ernie to adopt if they act independently?

A. Both choose a high price strategy.
B. Both choose a low price strategy.
C. Bert chooses a high price strategy and Ernie chooses a low price strategy.
D. Bert chooses a low price strategy and Ernie chooses a high price strategy.

Answer 1

Both choose a low price strategy

Step-by-step explanation:

In simple words a low price strategy can be defined as a pricing policy where a firm pays a comparatively cheap price to fuel competition and win share of the market.

This is part of three standardized marketing techniques (differentiation approach and concentration approachre the other two ) that can be implemented by any organization and used where the commodity has little to no competitive edge or where productivity gains and higher manufacturing volume are feasible.