Firm B colludes with Firm Firm B cheats by selling more output A Firm A colludes with Firm B A gets $1,000, B gets A gets $800, B gets $200 $100 Firm A cheats by selling more A gets $1,050, B gets A gets $500, B gets $20 output $50 Table 10.4

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Sometimes oligopolies in the same industry are very different in size. Suppose we have a duopoly where one firm
(Firm A) is large and the other firm (Firm B) is small, as the prisoner’s dilemma box in Table 10.4 shows.

Assuming that both firms know the payoffs, what is the likely outcome in this case?

Firm B colludes with Firm
Firm B cheats by selling more
output
A
Firm A colludes with Firm B
A gets $1,000, B gets
A gets $800, B gets $200
$100
Firm A cheats by selling more
A gets $1,050, B gets
A gets $500, B gets $20
output
$50
Table 10.4
Transcribed Image Text:Firm B colludes with Firm Firm B cheats by selling more output A Firm A colludes with Firm B A gets $1,000, B gets A gets $800, B gets $200 $100 Firm A cheats by selling more A gets $1,050, B gets A gets $500, B gets $20 output $50 Table 10.4
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