Question

Why and how can firms in an oligopoly market structure cooperate and collude? Using concepts like the kinked demand curve and the prisoner’s dilemma, explain why it can be difficult for firms to cooperate over a long period of time and with more than just a few firms.

Answer 1

When one firm which use fixed cost and enter the market which have the profitable one.because it has small fixed cost and very large marginal cost .But it can supply the entire market at a lower average total cost than two or more firms.produces the efficient quantity of output when it is not regulated produces the efficient quantity of output when it is not regulated. The firm
produces the efficient quantity of output when it is not regulated. has very small fixed costs and very large marginal costs produces the efficient
quantity of output when it is not regulated. According to linear demand curve and constant marginal cost model gives that regulated market firm only can typically happens when fixed costs are large relative to variable costs. As a result, one firm is able to supply the total quantity demanded in the market. Only this time possible to equilibrium.