Question: Why does a collusive agreement to restrict output and raise the price create a game like the prisoners' dilemma? In a duopoly with a collusive
Why does a collusive agreement to restrict output and raise the price create a game like the prisoners' dilemma?
In a duopoly with a collusive agreement to restrict output and raise the price, a firm's best strategy is to if the other firm complies, and to if the other firm cheats.
A comply; comply
B comply; cheat
C cheat; comply
D cheat cheat
A collusive agreement creates a game like the prisoners' dilemma because
A collusion is illegal and the players will end up in jail if caught
B collusion is illegal and the players will end up with the maximum jail time
C the outcome is better than if both firms held to the agreement
D the outcome is worse than if both firms held to the agreement
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