The Boca Raton Company announces that if it reduces its price subsequent to a purchase, the early customer will get a rebate so that he or she will pay no more than those buying after the price reduction.
a. If the Boca Raton Company has only one rival, and if its rival too makes such an announcement, does this change the payoff matrix? If so, in what way?
b. Do such announcements tend to discourage price cutting? Why or why not?