Question

An online movie streaming service charges $14.99 per month for its basic package. However, when a competitor introduced the same service at $13.99, the firm dropped its price to $13.99. The firm most likely made this price reduction in an attempt to

Answer 1

Answer:

The firm reduced its price to maintain its market share.

Explanation:

An online streaming service is providing its basic package at the price of $14.99.  

A competitor of the firm offers the same service at $13.99.  

The firm in the reaction will also reduce its price to $13.99.  

We know that the consumers always prefer the cheaper substitute, so if the competitor was providing the service at a lower price, it was most likely that the consumers will purchase from the competitor.  

This would have led to a decline in the demand and thus the market share of the firm. So in order to maintain its market share. The firm reduced its price at the same level as its competitor.