Bombay Fast Food and 2 Bros. Pizza are pizza parlors that are located a few feet away from each other on a street in New York.
a. Both firms sell pizza slices at a price of $1 each. Given this price, suppose the demand for pizza slices on that street is equal to 10,000 slices per week. What would the market demand curve for these two firms look like?
b. At one point, both firms were selling a slice of pizza for just 75 cents which is the marginal cost of a slice of pizza. How would you explain this situation using the prisoner’s dilemma?
c. Suppose that both firms together decide to increase the price to $1. Would this be considered collusion? If you knew that both of these firms accounted for a negligible portion of the pizza market in New York, would that information affect your answer?