CFA Level I · CFA Level I Exam · The Firm and Market Structures
Which factor would most likely make a collusive agreement among oligopoly firms easier to sustain?
Frequent, easily observed prices make collusion easier to sustain. When cheating is detected quickly, rivals can retaliate, reducing the payoff from breaking the agreement. Many firms, different costs, and secret discounts make coordination and monitoring harder, so they weaken collusion.
- AMany firms with differing cost structures
- BFrequent, easily observed prices that allow cheating to be detected quicklyCorrect
- CRapidly changing products with secret price discounts
Explanation
Collusion is hard to maintain because each member gains by cheating. Easy monitoring lets rivals detect and punish cheating quickly, which reduces the incentive. Many firms, differing costs, and secret discounts make agreement and monitoring harder.
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