An incumbent usually charges a higher price than a new entrant does. Which of th

Question

An incumbent usually charges a higher price than a new entrant does. Which of the following is a plausible reason for this observation?

A. An incumbent usually has a bigger bureaucratic body than a new entrant does and hence has a higher marginal cost. B. Consumers are risk averse, hence new firms charge lower prices to attract customers. C. The incumbent is ignorant of the new entrant, hence it is still charging the old high price. D. All of the statements associated with this question are correct.

Explanation / Answer

B. Consumers are risk averse, hence new firms charge lower prices to attract customers.

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