Practice question · Multiple choice
Two petrol stations on the same corner match each other's prices within minutes, day after day, without ever meeting. Is that collusion?
Hints
- The prisoner's dilemma played once has a clear answer. Ask what changes when it is played every day forever.
- What does each station learn about the consequences of cutting its price?
Show the answer
A. Not legally; repetition teaches that undercutting is punished
Why
The shadow of tomorrow's retaliation does what a contract would, so the cooperative outcome arrives without anyone agreeing to it, tacit collusion. That is precisely why competition authorities find it so hard to prosecute: the structure is guilty, and no one made a phone call.
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.
More questions on Game Theory in Business
- Order the steps for finding a Nash equilibrium in a 2×2 payoff matrix.
- In the pricing game, Low is a dominant strategy for both firms. Why does that make the outcome predictable…
- Which conditions help sustain tacit cooperation (high prices) in a repeated oligopoly game?
- Order the unraveling of a cartel, from formation to collapse.
- Sort each business situation by the game it most resembles.