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When Advanta Corp. decided that it wished to begin charging a fee to holders of its credit cards for periods during which the card is not used and for closing the account, it first "signaled" its intentions to hike fees by publicly announcing its plans in advance. The company notified its cardholders that it wouldn't begin charging the fees right away but would reserve the right to do so. One worried cardholder told the Wall Street Journal, "I hope the other credit card companies don't follow suit." Apparently, cardholders had good reason to worry, according to one credit card industry analyst: "Everyone is considering (raising fees), but everyone's afraid. The question is, who'll be daring and be second? If there's a second, then you'll see a flood of people doing it."
a. If Advanta believes raising fees is a profitable move, then why would it delay implementing the higher fees, which could reduce the amount of profit generated by higher fees?
b. Are rivals waiting for Advanta to implement its fee hikes before they do in order to secure a second-mover advantage? Explain, is there any other reason rivals might wait to raise their prices?
c. Could Advanta Corp. be trying to establish itself as the price leader in the consumer credit card industry?
Many suppliers experience economies of scale as output expands, which implies that long-run average costs are falling. At very high levels of production, however, many firms are likely to experience diseconomies of scale.
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