Question

Which of the following is the most likely reason for breakdown in collusive behavior between firms in an Oligopoly?
i) The existence of economies of scale.
ii) Reduced power of the competition and market authority.
iii) A chance for one of the colluding firms to gain some short term profit.
iv) A change in business objectives to revenue maximization.​

Answer 1

Answer:

Oligopoly is a market structure with a small number of firms, none of which can keep the others from having significant influence. ... A monopoly is a market with only one producer, a duopoly has two firms, and an oligopoly consists of two or more firms.

Explanation:

Oligopoly arises when a small number of large firms have all or most of the sales in an industry. Examples of oligopoly abound and include the auto industry, cable television, and commercial air travel. Oligopolistic firms are like cats in a bag.

Answer 2

A chance for one of the colluding firms to gain some short term profit. is the most likely reason for a breakdown in collusive behavior between firms in Oligopoly. (option iii)

The term "oligopoly" refers to a small group of producers who work together, either explicitly or implicitly, to limit output and/or fix prices in order to achieve higher-than-average market returns.

• Economic, legal, and technological factors can all play a role in the formation, maintenance, and demise of oligopolies.

• The major challenge that oligopolies face is the prisoner's dilemma, which encourages each member to cheat.

• The main issue that these firms face is that each has an incentive to cheat; if all firms in the oligopoly agree to jointly limit supply and keep prices high, then each firm stands to capture significant business from the others by breaking the agreement and undercutting the others.

• Such competition can be waged through pricing or simply by the individual company increasing the amount of output brought to market.

• Government policy can either discourage or encourage oligopolistic behaviour, and firms in mixed economies frequently seek government approval to limit competition.

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