Collusion is difficult to maintain because firms always have an incentive to cheat by increasing their output or lowering prices to gain a larger market share. This creates an incentive for other firms to do the same, leading to a breakdown of the collusion. Therefore, (A) is the correct answer.

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Collusion Is

Question 139

Multiple Choice

Collusion is:

A) difficult to maintain since firms always have an incentive to renege.
B) easy to maintain since firms always have an incentive to renege.
C) difficult to maintain since firms rarely agree on the terms.
D) easy to maintain since firms face similar cost curves.

Correct Answer: