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Fact 15.2.1
Two firms, FastNet and SmartCast are the only Internet providers in a city. They have identical costs and one firm's service is a perfect substitute for the other firm's service. The industry is a natural duopoly. FastNet and SmartCast decide to collude and agree to share the market equally.
-Refer to Fact 15.2.1. What is the Nash equilibrium?
A)Both firms cheat on the agreement.
B)One firm cheats and one firm complies.
C)Both firms comply with the agreement.
D)New firms enter the market.
E)Both firms charge the price that would exist in a perfectly competitive market.

Question

Quizplus · Accepted Answer

In a collusion scenario, the Nash equilibrium often involves both firms cheating, as each firm has an incentive to undercut the other to increase its market share and profits.

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