Monopolist Response to Substitute Price Change
A pure monopolist learns that a new tax will be imposed on a firm that produces a close substitute good. Which of the following actions is the monopolist most likely to take to maximize profit?
Reduce outputs expecting decreased overall industry demand as a result of these harsher regulations imposed upon rivals.
Engage in extensive advertising campaigns immediately attempting to capture any potential defectors early stages of regulation enactment.
Maintain current price levels anticipating no effect on own-market since they’re already dominant player.
Slightly raise the price knowing their rival’s increased costs might drive customers away from substitute products towards theirs regardless of small increases.
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