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Suppose Two Firms, FastNet and SmartCast Are the Only Fast

Question 112

Multiple Choice

Suppose two firms, FastNet and SmartCast are the only fast Internet providers in a city. They have identical costs and one firm's service is a perfect substitute for the other's. The industry is a natural duopoly. Suppose that FastNet and SmartCast collude and agree to share the market equally.
-In the scenario above, in Nash equilibrium:


A) Both firms cheat to produce more than the agreed amount.
B) Both firms comply with the agreement.
C) One firm complies with the agreement while the other cheats to produce more than the agreed amount.
D) Both firms cheat to produce less than the agreed amount.

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