BestDeal.com and CrazySavings.com are two online retailers with free return policies. They sell the same brand of TV. The retailers' cost per TV is $1000. There are 100 buyers in the market. Each buyer has a perfectly inelastic demand for exactly one TV. Initially, each buyer pays for a TV from either website with equal probability. If the buyer finds out that the other website offers a strictly lower price. he/she will simply return the TV to the original website free of charge, and then buy a new one from the other website at the cheaper price. Let PBD be the price that BestDeal.com charges for the TV. Let prs be the price at
BestDeal.com and CrazySavings.com are two online retailers with free return policies. They sell the same brand of TV. The retailers' cost per TV is $1000. There are 100 buyers in the market. Each buyer has a perfectly inelastic demand for exactly one TV. Initially, each buyer pays for a TV from either website with equal probability. If the buyer finds out that the other website offers a strictly lower price. he/she will simply return the TV to the original website free of charge, and then buy a new one from the other website at the cheaper price. Let PBD be the price that BestDeal.com charges for the TV. Let prs be the price at
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:BestDeal.com and CrazySavings.com are
two online retailers with free return
policies. They sell the same brand of TV.
The retailers' cost per TV is $1000.
There are 100 buyers in the market. Each
buyer has a perfectly inelastic demand for
exactly one TV. Initially, each buyer pays
for a TV from either website with equal
probability. If the buyer finds out that the
other website offers a strictly lower price,
he/she will simply return the TV to the
original website free of charge, and then
buy a new one from the other website at
the cheaper price.
Let PBD be the price that BestDeal.com
charges for the TV. Let pcs be the price at
CrazySavings.com. PBD and pcs can be
any positive real number.
Question: Is there an equilibrium in which
PBD = $1500?
O No
O Yes
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