Practice question · Put in order
Order the unraveling of a cartel, from formation to collapse.
- Each member notices cheating would boost its own profit
- Others detect the cheating and retaliate with cuts
- Rivals agree to keep prices high
- Prices collapse to the competitive level
- One firm secretly undercuts the agreed price
Hints
- The agreement must exist before anyone can defect from it.
- Detection triggers retaliation, and retaliation ends the arrangement.
Show the answer
- Rivals agree to keep prices high
- Each member notices cheating would boost its own profit
- One firm secretly undercuts the agreed price
- Others detect the cheating and retaliate with cuts
- Prices collapse to the competitive level
Why
The cartel’s poison is internal: every member’s private incentive points against the collective deal.
Practise Game Theory in Business
The app has 6 more questions on this lesson, and keeps your place in the course. Business I is free to start.
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