Low-Price Guarantees for a Canopy Tour. Dip and Zip provide canopy tours in a rain forest. The average cost per rider is constant at $10. Here are the possible outcomes: Price fixing (cartel). Each firm has 6 passengers at a price of $20. Duopoly (no price fixing). Each firm has 8 passengers at a price of $15. Underpricing (one firm charges $20 and the other charges $15). The low-price firm has 13 passengers and the high-price firm has 2 passengers. Dip chooses a price first, followed by Zip.
a. Assume that the firms do
b. Suppose both firms provide low-price guarantees. Draw a new game tree and predict the outcome of the price-fixing game.
c. Is the promise to match any lower price a substantive promise or an empty promise?