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Identifying an Equilibrium State
Imagine two competing ride-sharing companies in a city. Both have settled on charging a standard fare of $10 for a typical ride. Company A considers lowering its price to $9 to attract more customers. However, its managers predict that Company B would immediately match the price cut, resulting in both companies earning less revenue than before. Therefore, Company A decides not to change its price. Company B's managers have reached the same conclusion. As a result, the $10 fare persists. Explain why this situation, where both companies charge $10, can be described as a self-perpetuating outcome.
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The Economy 2.0 Microeconomics @ CORE Econ
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