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Firm D Firm D
High Price Low Price
Firm C High Price 600, 500 350, 550
Firm C Low Price 450, 400 450, 300

The payoff matrix above shows the potential earnings of two firms, C and D, who belong to a cartel and are currently colluding on a (high price) pricing strategy. The first entry in each cell shows Firm C’s expected revenue while the second entry shows Firm​ D’s expected revenue.

Which of the statements is correct about the firm with the greatest incentive to cheat (choose a low price) on its cartel partner?

A

Firm C could increase its revenue by 50 if it cheated.

B

Firm C could increase its revenue by 150 if it cheated.

C

Firm D could increase its revenue by 50 if it cheated.

D

Firm D could increase its revenue by 100 if it cheated.

E

Firm C could increase its revenue by 250 if it cheated.

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