Question

Does a more competitive market imply greater or lower gains for participation in cartel behavior (e.g. collusion, price fixing)?

Please try to answer in terms of the Infinitely Repeated Prisoner’s Dilemma Game. Thank you.

Answer 1

Cartel system helps to get better industry profits and mutual benefits for the firm's but are inherently very unstable. The cartel system is formed to enjoy the market benefit like a monopoly where limited produce with increased price is the strategy followed by all members. Most efficient firms will tend to break the norms by cutting price to increase market share when it comes to competition. The prisoner delimma helps to understand the behaviour of Oligopolies. The dominant firm as a big player each firm tries to defect that helps to benefit themselves. This is a paradox for the decision making analysis where two individuals as a team cannot produce an optimal output. Here the scenario is both parties tries to protect themselves at the cost of the other . If they remain in cooperation both can have mutual benefit but unfortunately they tend to cheat expect to escape by letting the other to suffer. The same is seen in case of Oligopolies.