When businesses cooperate and agree to hold prices high,it is called ____________,and when they reach a noncooperative equilibrium it is called _______________.
A) collusion; competition
B) competition; collusion
C) commitment strategy; collusion
D) collusion; commitment strategy

Question

Quizplus · Accepted Answer

Collusion is when businesses cooperate to hold prices high, and if they reach an agreement, it is called a collusive agreement. When the agreement breaks down, they return to noncooperative behavior, which is referred to as competition. Therefore, option A is the correct one. Option B implies that cooperation is the norm and non-cooperation is the exception, which is not accurate. Option C refers to a different concept called commitment strategy, which is not relevant to the question. Option D is incorrect because the explanation of collusion applies to the first term only, and there is no association between collusion and commitment strategy.

When Businesses Cooperate and Agree to Hold Prices High,it Is