Collusion Makes Firms Better Off Because If They Act as a Single

question 101

Multiple Choice

Collusion makes firms better off because if they act as a single entity (a cartel) they can reduce output and increase their prices and profits.But some cartels have failed and others are unstable.Which of the following is a reason why cartels often break down?

• A)Most cartels do not have a dominant strategy.
• B)When a cartel is profitable, the amount of competition it faces increases.
• C)Members of a cartel may resent having to share their profits equally.
• D)Each member of a cartel has an incentive to "cheat" on the collusive agreement by producing more than its share when everyone else sticks with the collusive agreement.

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Definitions:

Right of Redemption

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Doctrine

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Escrow

A legal arrangement in which a third party temporarily holds money, property, or documents until certain conditions are fulfilled.