If the smartwatch market is a cooperative oligopoly dominated by the Apple Watch with significant barriers to entry and exit and a heterogeneous product that can be differentiated horizontally and vertically, which statement is likely correct?
Question 9 options:
If one of Apple's rivals creates a successful, high-price, high-quality version of the smartwatch, then they will earn excess profits from their new watch until Apple creates its own version of the high-end smartwatch.
If Apple develops a new advertising campaign for its Apple Watch that increases sales, then its rivals will develop similar ad campaigns to increase their sales.
If Apple develops innovative software for its new Apple Watch that allows it to monitor a user's health and its rivals find it difficult to emulate, then Apple will earn excess profits from the innovation in both the short run and long run.
All the statements are likely correct.
If Apple prices its new Apple Watch at $500—$200 more than its previous version—its rivals will raise the price of their smartwatches as well.