A collusion breaks down if ________.

Question

Quizplus · Accepted Answer

A collusion breaks down when one or more firms deviate from the agreed-upon behavior of charging the same price. If a firm charges a lower price than the price set by the other colluding firms, it can gain a larger market share and increase profits, leading to the breakdown of the collusion. If a firm charges a higher price than the other colluding firms, it would be unlikely to gain customers and may lose market share, but this would not necessarily lead to the breakdown of collusion. The price set by the colluding firms may be above or below the marginal cost of production, but that alone does not determine whether the collusion will break down.

A Collusion Breaks Down If ________