The duopoly price strategy provides ________ incentive to maintain cartel pricing as compared to the grim trigger strategy.

Question

Quizplus · Accepted Answer

The duopoly price strategy involves collusion between two firms to maintain higher prices in the market. However, since there are only two firms involved, there is a greater likelihood that one or both of the firms will defect from the agreement and engage in price competition. This risk of defection reduces the incentive to maintain cartel pricing. On the other hand, the grim trigger strategy involves a credible threat of punishment for defection, which can help to maintain cartel pricing. Therefore, the grim trigger strategy provides a greater incentive to maintain cartel pricing.

The Duopoly Price Strategy Provides ________ Incentive to Maintain Cartel