In an oligopolistic market structure, collusion between firms usually leads to higher profits than noncooperative behavior.However, formal, overt collusion doesn't usually occur in the United States because:
A)it is illegal.
B)there is an incentive for each firm to cheat on a collusive agreement.
C)an oligopolistic firm will typically prefer lower profits if the only way to make higher profits is to improve the profit position of its rivals.
D)it is illegal and because there is an incentive for each firm to cheat on a collusive agreement.

Question

Quizplus · Accepted Answer

The best choice is D because it correctly identifies that formal, overt collusion is illegal in the United States and that there is an incentive for each firm to cheat on a collusive agreement. This makes collusion difficult to maintain, even if it would lead to higher profits in the short run. Therefore, firms in oligopolistic markets typically engage in noncooperative behavior instead. Choice A is partially correct in that collusion is illegal, but it does not fully explain why collusion does not occur. Choice B is also partially correct, but it does not explain why firms do not form collusive agreements in the first place. Choice C is incorrect because it assumes that firms prioritize their rivals' profits over their own, which is unlikely in a competitive market.

In an Oligopolistic Market Structure, Collusion Between Firms Usually Leads