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1. Niceville, Ohio, only has two dentists, while the surrounding communities have many more on a...

1. Niceville, Ohio, only has two dentists, while the surrounding communities have many more on a per capita basis. The demand for dental services is such that these two dentists could agree to raise their prices (they play golf together every Saturday) and earn economic profit. Instead, they choose to price competitively and earn what other dentists earn. What might explain this?

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It is possibe that the dentists might choose not to raise prices if they fear that because they raised the prices, dentists from the surrounding communities may move to these areas and capture the market. Since dentists do not require huge fixed capital investments, it is easier for dentists to enter into business in the markets of Niceville and Ohio. To avoid this situation, these two dentists might resort to pricing fairly and capturing the market slowly.

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