Principles of Microeconomics, 7th Edition

Published by South-Western College
ISBN 10: 128516590X
ISBN 13: 978-1-28516-590-5

Chapter 17 - Part V - Oligopoly - Quick Check Multiple Choice - Page 367: 5

Answer

Option A.

Work Step by Step

The prisoners' dilemma takes into account firm behavior. If a firm becomes "greedy" and decides to charge a larger price, the other firm in the market will lower the price of their product, to increase their profits. With this lower price, the competitive firm will also lower its price to increase its profit. In other words, both competitors pull each other down. Theory of the incentive to compete and incentive to collude.
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