Table 15.2.10

-Refer to Table 15.2.10. Firm A and Firm B are the only producers of soap powder. They collude and agree to share the market equally. The equilibrium ________ a dominant strategy equilibrium because the strategy in this game is for a firm ________.
A)is; to comply regardless of the other firm's choice
B)is not; to comply when the other firm cheats and to cheat when the other firm complies
C)is; to cheat regardless of the other firm's choice
D)is not; to comply when the other firm complies and to cheat when the other firm cheats
E)is; to comply when the other firm cheats and to cheat when the other firm complies

Question

Table 15.2.10
 
-Refer to Table 15.2.10. Firm A and Firm B are the only producers of soap powder. They collude and agree to share the market equally. The equilibrium ________ a dominant strategy equilibrium because the strategy in this game is for a firm ________.
A)is; to comply regardless of the other firm's choice 
B)is not; to comply when the other firm cheats and to cheat when the other firm complies 
C)is; to cheat regardless of the other firm's choice 
D)is not; to comply when the other firm complies and to cheat when the other firm cheats 
E)is; to comply when the other firm cheats and to cheat when the other firm complies

Quizplus · Accepted Answer

In a collusive agreement, both firms agree to restrict output and share the market. Since Firm A and Firm B have agreed to share the market equally, they would want to cheat on each other by secretly increasing their production to gain a larger market share. Therefore, cheating is the dominant strategy for both firms, making option C the correct answer.

Table 15.2.10 -Refer to Table 15.2.10. Firm a and Firm B Are