Multiple Choice
Jack employs a tit-for-tat strategy. If Jill cooperates this period, how many gallons will Jack produce?
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14. Oligopoly
Repeated Games
Multiple Choice
Two regional airlines match each other's baggage fees within hours of an announcement. Which oligopoly concept does this behavior most directly illustrate?
A
Price leadership (one firm sets prices and others follow)
B
Tacit collusion (implicit price coordination)
C
Bertrand competition (firms compete by undercutting prices)
D
Formal cartel (explicit agreement to fix prices)
Verified step by step guidance1
Understand the context: Two regional airlines quickly match each other's baggage fees without any formal agreement. This suggests a form of price coordination without explicit communication.
Recall the definitions of the options: Price leadership involves one firm setting prices and others following explicitly; formal cartel requires explicit agreements; Bertrand competition involves firms undercutting each other's prices aggressively.
Identify that the airlines' behavior is an example of implicit coordination where firms avoid price wars by matching prices without direct communication or formal agreements.
Recognize that this implicit coordination is known as tacit collusion, where firms indirectly cooperate to maintain prices at a certain level.
Conclude that the behavior described most directly illustrates the concept of tacit collusion in an oligopoly market.
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