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:

Processing

In psychology, refers to the operations carried out by the brain to interpret and organize sensory information into meaningful patterns.

Additive

A substance added to something in small quantities to improve or preserve it. In another context, it refers to a process or principle involving the addition of elements or quantities.

Subtractive

A process or method that involves removing elements or aspects to simplify or reduce complexity.

Opponent Processes

A theory initially applied to color vision, suggesting that the perception of color is controlled by the activity of two opposing processes.