Explain why there is an incentive to cheat in collusive oligopoly. How does such behavior threaten collusive oligopoly over time?
What will be an ideal response?
If a collusive oligopoly wants to increase sales and profit, then one way to do so would be to make secret deal with buyers. If, however, other buyers became aware of such arrangements they may demand the same terms from their suppliers, who are also collusive monopolists. As buyers try to obtain concessions from their suppliers, the price for all collusive monopolists gets undercut. Cheating only works well in a collusive oligopoly when the cheating is difficult to detect and punish.
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