Microeconomics 18th Edition by Campbell McConnell, Stanley Brue, Sean Flynn

Exercise 19

Explain the general meaning of the following profit payoff matrix for oligopolists C and D. All profit figures are in thousands.
a. Use the payoff matrix to explain the mutual interdependence that characterizes oligopolistic industries.
b. Assuming no collusion between C and D, what is the likely pricing outcome
c. In view of your answer to 8b, explain why price collusion is mutually profitable. Why might there be a temptation to cheat on the collusive agreement
The matrix shows the four possible profit outcomes for each of two firms, depending on which of the two price strategies each follows. Example: If C sets price at $35 and D at $40, C's profits will be $59,000, and D's $55,000.