A collusive agreement over the quantity of output is difficult for firms to maintain because each firm has a profit incentive to break the agreement and increase production.

Question

Quizplus · Accepted Answer

Each firm wants to increase its profits by increasing production, so it is difficult to maintain an agreement where all firms agree to limit their output. One firm may cheat and increase production to gain a larger market share and higher profits, which may cause other firms to follow suit and break the agreement.

A Collusive Agreement Over the Quantity of Output Is Difficult