Answered

At Westonci.ca, we connect you with the best answers from a community of experienced and knowledgeable individuals. Explore our Q&A platform to find reliable answers from a wide range of experts in different fields. Our platform offers a seamless experience for finding reliable answers from a network of knowledgeable professionals.

Suppose a third firm enters the market. If they all don't cheat, then they split the profits three ways so that each firm gets 2 million. If one firm cheats, he steals profits from the other two firms and earns 5.5 million while the other firms incur losses of 1 million. Will it be harder or easier to sustain cooperation?

Sagot :

Parrain

Answer: Harder to sustain cooperation

Explanation:

When the number of firms in an oligopolistic market increases as is the case here, cooperation becomes harder because profits become smaller so companies start to become more selfish.

Also in this scenario, the cheating firm has the incentive to do so because the profit is so much higher than sharing so companies will always be looking to cheat in order to make this profit. The other firms would reply by reducing prices and all of them would suffer.

We hope our answers were helpful. Return anytime for more information and answers to any other questions you may have. We appreciate your visit. Our platform is always here to offer accurate and reliable answers. Return anytime. Thank you for visiting Westonci.ca, your go-to source for reliable answers. Come back soon for more expert insights.