The greater the number of firms in a colluding oligopoly,the ________ the gain from undercutting the monopoly price and the ________ the potential future loss from a price war.
A) smaller; smaller
B) smaller; larger
C) larger; larger
D) larger; smaller

Question

Quizplus · Accepted Answer

In a colluding oligopoly, as the number of firms increases, the individual gain from undercutting the monopoly price becomes larger because each firm has a smaller share of the market. However, the potential future loss from a price war becomes smaller because the impact of one firm's price cut is diluted among many firms.

The Greater the Number of Firms in a Colluding Oligopoly,the