Sometimes oligopolies in the same industry are very different in size. Suppose we have a duopoly where
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Sometimes oligopolies in the same industry are very different in size. Suppose we have a duopoly where one firm (Firm A) is large and the other firm (Firm B) is small, as the prisoner’s dilemma box in Table 10.4 shows.
Table 10.4
Assuming that both firms know the payoffs, what is the likely outcome in this case?
Transcribed Image Text:
Firm A colludes with Firm B Firm A cheats by selling more output Firm B colludes with Firm A A gets $1,000, B gets $100 A gets $1,050, B gets $50 Firm B cheats by selling more output A gets $800, B gets $200 A gets $500, B gets $20
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Firm B reasons that if it cheats and Firm A does not notice it will dou...View the full answer
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