Scenario: Imagine two gas stations across the street from each other and producing the same quality of gasoline. Imagine there is nothing special about each gas station such that, at a given price, a passer-by would be indifferent to each gas station. For example, if one was a Wawa and the other a Sheetz there would clearly be a superior experience even if prices were the same (though deciding which one is superior is NOT the point of this discussion). Lastly for Gas Station A and Gas Station B there are two prices that they could each charge: $2.00 and $2.50 for a gallon of regular gasoline.

For this discussion, consider what would happen if Gas Station A charged $2.50 and Gas Station B charged $2.00, would Gas Station A make any money? What percentage of the cars driving by would be captured by Gas Station B?

Based on your answer to question one, do you think it would be necessary for both gas stations to collude in order for both to charge a higher amount? Would it ever be beneficial to charge a higher amount knowing your competitor could charge a lower amount and earn more business? What does this tell us about monopolistic competition and oligopolies?