People sometimes point to similar gas prices at competing gas stations as evidence of collusion when they could just be selling at market price. If this is not good evidence of collusion, what is?
A) The profits of the companies are unusually high in the short run.
B) The station owners regularly have morning coffee together.
C) There is some kind of punishment for cheating.
D) Someone thinks they overheard their plans for collusion.

Question

Quizplus · Accepted Answer

Unusually high profits in the short run can be an indicator of collusion because collusion can lead to higher prices and therefore higher profits for all companies involved.

Answer: C
 The presence of punishment for cheating can deter collusion because if the companies get caught, they face penalties such as fines or even jail time. This fear of punishment can discourage collusion from happening in the first place.

Answer: D
 Overhearing plans for collusion can be good evidence of it occurring because it indicates that the companies are actively coordinating with each other to raise prices. However, this should be corroborated with other evidence to confirm its accuracy because it could potentially be a misunderstanding or a rumor.

Choice B is not good evidence of collusion because coffee meetings among station owners could simply be a social occasion or a chance to discuss common challenges in the industry. Similarly, similar gas prices at competing stations could be due to market forces and competition rather than collusion.

People Sometimes Point to Similar Gas Prices at Competing Gas