Consider a duopoly market where the players agree to collude.The single-period prisoner's dilemma game applied to this market generally predicts that:
A)the firms will maintain the collusion agreement.
B)one firm will cheat on the agreement while the other will not.
C)both firms will cheat and the collusion agreement will break down.
D)the firms will be worse off from collusion than cheating.

Question

Quizplus · Accepted Answer

In a single-period prisoner's dilemma game, each firm has an incentive to cheat on the agreement because it results in a higher payoff than maintaining the collusion agreement. This means that both firms will likely cheat and the collusion agreement will break down.

Consider a Duopoly Market Where the Players Agree to Collude