Suppose that Bieber and Rihanna are duopolists in the music industry. In May, they agree to work together as a monopolist, charging the monopoly price for their music and producing the monopoly quantity of songs. By June, each singer is considering breaking the agreement. What would you expect to happen next?
A)Bieber and Rihanna will determine that it is in each singer's self interest to maintain the agreement.
B)Bieber and Rihanna will each break the agreement. Both singers' profits will decrease.
C)Bieber and Rihanna will each break the agreement. Both singers' profits will increase.
D)Bieber and Rihanna will each break the agreement. The new equilibrium quantity of songs will increase, and the new equilibrium price also will increase.

Question

Quizplus · Accepted Answer

Each singer has an incentive to cheat and produce more songs to increase their own profits. If one singer breaks the agreement and produces more songs, the other singer will also have an incentive to break the agreement and produce more songs to avoid losses in market share. As a result, both singers will likely break the agreement, leading to a decrease in both of their profits. This outcome is an example of the prisoners' dilemma game in game theory.

Suppose That Bieber and Rihanna Are Duopolists in the Music