Assume that two firms are engaged in a pricing rivalry and attempt collusion.If each firm knows that the pricing game will last for a finite number of periods,and the collusion contract is not enforceable,then they will have an incentive to:
A)cheat in every period.
B)cheat in alternate periods.
C)cheat in every period but the first.
D)cheat in every period but the last.

Question

Quizplus · Accepted Answer

If the collusion contract is not enforceable, then there is no penalty for cheating. In a finite game, each firm will have an incentive to maximize their profits in every period. Therefore, both firms will have an incentive to cheat in every period to gain an advantage over the other.

Assume That Two Firms Are Engaged in a Pricing Rivalry