Table 14-5 Two rival oligopolists in the athletic supplements industry,the Power Fuel Company and the Brawny Juice Company,have to decide on their pricing strategy.Each can choose either a high price or a low price.Table 14-5 shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts.
-Refer to Table 14-5.If the two firms collude,is there an incentive for either to cheat on the collusion agreement?

Question

Table 14-5  Two rival oligopolists in the athletic supplements industry,the Power Fuel Company and the Brawny Juice Company,have to decide on their pricing strategy.Each can choose either a high price or a low price.Table 14-5 shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts.
-Refer to Table 14-5.If the two firms collude,is there an incentive for either to cheat on the collusion agreement?

Quizplus · Accepted Answer

If two firms collude, each firm has an incentive to cheat to increase its own profit, assuming the other firm sticks to the agreement.

Table 14-5 Two Rival Oligopolists in the Athletic Supplements