The small town of Sand Trails, AZ, is almost 100 miles from the nearest city, with nothing but desert surrounding it. Only four pizza parlors serve the town. One of the pizza parlors, Luigi’s Pizza Palace, considered lowering its prices (and profits) for a period of time in order to take business away from competitors. After some discussion, however, the owners decided not to do it. Why? (Consider the type of market structure in operation here.)

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24-05-2022
Business

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The small town of Sand Trails, AZ, is almost 100 miles from the nearest city, with nothing but desert surrounding it. Only four pizza parlors serve the town. One of the pizza parlors, Luigi’s Pizza Palace, considered lowering its prices (and profits) for a period of time in order to take business away from competitors. After some discussion, however, the owners decided not to do it. Why? (Consider the type of market structure in operation here.)

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Parrain Parrain · Answer 1 · 2022-05-27T13:20:17+02:00

Based on the number of businesses in Sand Trails, the reason why the owners did not lower prices was because it would have started a price war which would impact them negatively.

Why are price wars bad in oligopolies?

Oligopolies are characterised by few firms which is what we see with the pizza parlors in Sand Trails.

If they had lowered their prices, it would have started a price war where other pizza parlors would lower their prices as well. This would lead to all pizza parlors making less profits.

Find out more on price wars at https://brainly.com/question/1918495.

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