Table 14-8 Two Rival Oligopolists in the Coffee Industry, Wide Awake and Coffee

question 201

Multiple Choice

Table 14-8

Two rival oligopolists in the coffee industry, Wide Awake and Zuma, have to decide on their pricing strategy. Each can choose either a high price or a low price. Table 14-8 shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts.
-Refer to Table 14-8.If the two firms collude, is there an incentive for either to cheat on the collusion agreement?

• A)No, neither firm can gain by cheating.
• B)Yes, but only Zuma is in a position to gain by cheating.
• C)Yes, but only Wide Awake is in a position to gain by cheating.
• D)Yes, either firm can gain if it, alone, cheats.

---

Definitions:

Accumulate Wealth

The process of gradually increasing assets, money, and investments over time through saving, investing, and earning.