Table 11-13
Two rival oligopolists in the coffee industry, Wide Awake and Zuma, have to decide on their pricing strategy. Each can choose either a high price or a low price. Table 11-13 shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts.
-Refer to Table 11-13.If the two firms collude,is there an incentive for either to cheat on the collusion agreement?

Question

Table 11-13
  Two rival oligopolists in the coffee industry, Wide Awake and Zuma, have to decide on their pricing strategy. Each can choose either a high price or a low price. Table 11-13 shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts.
-Refer to Table 11-13.If the two firms collude,is there an incentive for either to cheat on the collusion agreement?

Quizplus · Accepted Answer

If the two firms collude, either firm can gain by cheating because by doing so, they can increase their own profits while the other firm adheres to the collusion agreement. This creates an incentive to cheat.

Table 11-13 Two Rival Oligopolists in the Coffee Industry, Wide