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Unformatted text preview: cheats 2. Collusion a. If the industry collectively decides to set output below equilibrium, they can force the price up b. If the industry decides to set output below equilibrium, it would be in one persons best interest to set output above equilibrium c. Everyone has the incentive to defect d. Economists are suspicious of these deals i. The conditions for effective collusion are limited 1. Entry into industry is costly 2. Homogeneous Products 3. Inelastic Demand 3. (Read book over collusion) 4. Property Rights & Transaction Costs (Economic Organization) a. Information is costly i. Pricing mechanism is not free and it is costly b. Coase i. The Problem of Central Cost Payoff Matrix Person A Person B Silent Confesses Silent-1,-1-9,0 Confesses 0,-9-6,-6...
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- Spring '08