Consider a duopoly market where two firms supply products that were previously perfect substitutes for each other but succeed in differentiating them vertically. Which of the following statements best describes the evolution of their profits assuming all other factors (including production costs) remain equal across both firms?

Question

Answer

Only the high-quality firm will increase its profits.

Answer

Both firms will increase their profits and enjoy similar profitability.

Answer

Both firms will increase their profits and the high-quality firm will become the most profitable.

Answer

Both firms will increase their profits and the low-quality firm will become the most profitable.

Crowdly

Consider a duopoly market where two firms supply products that were previously p...

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