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 shown in the prisoner’s dilemma box in Table 5. Firm B colludes with Firm A Firm B cheats by selling more output Firm A colludes with Firm B A gets $1,000, B gets $100 A gets $800, B gets $200 Firm A cheats by selling more output A gets $1,050, B gets $50 A gets $500, B gets $20 Assuming that the payoffs are known to both firms, what is the likely outcome in this case?
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 shown in the prisoner’s dilemma box in Table 5. Firm B colludes with Firm A Firm B cheats by selling more output Firm A colludes with Firm B A gets $1,000, B gets $100 A gets $800, B gets $200 Firm A cheats by selling more output A gets $1,050, B gets $50 A gets $500, B gets $20 Assuming that the payoffs are known to both firms, what is the likely outcome in this case?
Chapter10: Monopolistic Competition And Oligoply
Section: Chapter Questions
Problem 9SQP
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Question
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 shown
in the prisoner’s dilemma box in Table 5.
| Firm B colludes with Firm A |
Firm B cheats by selling more output |
|
| Firm A colludes with Firm B |
A gets $1,000, B gets $100 |
A gets $800, B gets $200 |
| Firm A cheats by selling more output |
A gets $1,050, B gets $50 |
A gets $500, B gets $20 |
Assuming that the payoffs are known to both firms, what is the likely outcome in this
case?
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