Question

some years ago, the three leading aluminum producers in the US changed prices nine times by exactly the same amount each time and usually within one to three days of the initial price increase. This is an example of _____

A) sequential pricing

B) Price leadership

C) price discrimination

D) tacit collusion

E) price fixing

Answer 1

B.) Price leadership.

Price leadership is when a leading firm in its sector determines the price of goods or services. This can leave the leader's rivals with little choice but to follow its lead and match the prices if they are to hold onto their market share. Alternatively, competitors may also choose to lower their prices in the hope of gaining market share.

Price discrimination is a pricing strategy that charges customers different prices for the same product or service. In pure price discrimination, the seller charges each customer the maximum price that he is willing to pay.

Tacit collusion occurs where firms undergo actions that are likely to minimize a response from another firm, e.g. avoiding the opportunity to price cut an opposition. Put another way, two firms agree to play a certain strategy without explicitly saying so.

Price fixing is an agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand.

Sequential pricing framework in a continuous time cash flow model allowing for repeated valuation of different cash flow claims.