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. Firm B colludes with Firm AFirm B cheats by selling more outputFirm A colludes with Firm BA gets $1,000, B gets $100A gets $800, B gets $200Firm A cheats by selling more outputA gets $1,050, B gets $50A gets $500, B gets $20Table10.4Assuming that both firms know the payoffs, what is the likely outcome in this case?

Firm A: If firm A cheats and firm B colludes than firm A will get maximum payoff. But if firm B also…

Answered: Sometimes oligopolies in the same…

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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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.

	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

Table10.4

Assuming that both firms know the payoffs, what is the likely outcome in this case?

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