Collusive agreements between two firms are most likely to be honored when the game

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Collusive agreements between two firms are most likely to be honored when the game is repeated and both firms offer credible threats if the other violates the agreement. In a repeated game, both firms have the opportunity to punish the other if they break the agreement, which makes defection less likely. Additionally, the credibility of their threats affects the likelihood of the agreement being honored. If both firms have a lot at stake and are both likely to honor the agreement, it is more likely to be successful. When the game is a one-time game with the opportunity for a prisoner's dilemma, there is a high likelihood of defection as there is no future downside for not following through with the agreement. In a zero-sum game, the more one firm wins, the more the other loses, which means there is less incentive for cooperative behavior. Finally, in games with Nash equilibria that differ from the outcome that maximizes the payoffs to two firms, both firms have an incentive to deviate and pursue their own self-interest.

Collusive Agreements Between Two Firms Are Most Likely to Be