Explain the Difference Between "Informal Punishment" and "Formal Punishment

question 2

Essay

Explain the difference between "informal punishment" and "formal punishment." Give one example of each.

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Definitions:

Collusive Agreements

Arrangements between firms to limit competition and manipulate markets in their favor, often through setting prices or output levels.

Prisoner's Dilemma

A standard example of a game analyzed in game theory that shows why two completely rational individuals might not cooperate, even if it appears that it is in their best interest to do so.

Nash Equilibrium

A concept in game theory where no participant can gain by changing only their own strategy, assuming other participants' strategies remain unchanged.

Homogeneous Oligopoly

A market structure where a few firms offer products or services that are essentially identical and thus are substitutes for each other.