Why do some firms in an oligopoly refrain from colluding? What ...

[ahriuashd]

Why do some firms in an oligopoly refrain from colluding?
 
  What will be an ideal response?

Question 2

Refer to the scenario above. Arthur should place a bid of ________.
 
  A) 187.50
  B) 200
  C) 225
  D) 250

[samiel-sayed]

Answer to Question 1

There are two main reasons why firms may refrain from colluding. First, the nature of competition predicts that although the firms may have a verbal agreement that they will both set high prices, they may still engage in secret price cutting to capture more of the profits for themselves. Thus, although collusion is a great deal for oligopolists, it is difficult to sustain. Second, price fixing is illegal. The potential punishment for engaging in such actions has a strong discouraging effect.

Answer to Question 2

D