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Suppose two gas stations operate at the same busy intersection
Suppose two gas stations operate at the same busy intersection. You notice that the posted prices are almost always the same. Assuming that these firms are engaged in price collusion, can we automatically conclude that there is no competition for customers between the two stations?
Expert Solution
Even though the posted prices are almost always the same , the two firms can compete with each other in the quality of service they provide and also the quality of gas each gas station is providing to the customer. If either of the gas stations provide good service or good quality gas, customers are automatically drawn towards that gas station .
Hence we cannot conclude that there is no competition for customers between the two stations even though the posted prices are almost always the same.
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