2.5 The state of Connecticut sets a maximum fee that bail-bond businesses can charge for posting a...
Question:
2.5 The state of Connecticut sets a maximum fee that bail-bond businesses can charge for posting a givensize bond (Ayres and Waldfogel, 1994). The bailbond fee is set at virtually the maximum amount allowed by law in cities with only one active firm
(Plainville, 99% of the maximum; Stamford, 99%;
and Wallingford, 99%). The price is as high in cities with a duopoly (Ansonia, 99.6%; Meriden, 98%; and New London, 98%). In cities with 3 or more firms, however, the price falls well below the maximum permitted price. The fees are only 54% of the maximum in Norwalk with 3 firms, 64% in New Haven with 8 firms, and 78% in Bridgeport with 10 firms.
Give possible explanations based on the Cournot model for this pattern.
Step by Step Answer:
Managerial Economics And Strategy
ISBN: 9780135640944
2nd Global Edition
Authors: Jeffrey M. Perloff, James A. Brander