Suppose the two firms form a cartel designed to generate monopoly level profits. Explain intuitiv...
Suppose the two firms form a cartel designed to generate monopoly level profits. Explain intuitively why we might expect the cartel to fail. Sentence form
Homework Answers
Cartels are not stable.
Answering only intuitively, as per the query, no maths
When both firms collude to produce monoploly outcome, where each firm is producing half of Monopoly outcome,, then both firms have incentive to cheat, bcoz deviating from monopoly outcome, if any firm produces a little more, then that deviating firm's profit rise.
Thus firms deviate from Cooperation.
& Next period onwards play Nash equilibrium game only .
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