Question

Collusion can earn higher prices and higher profits under the Bertrand model, but why is this an unlikely outcome in practice?

	A.	Firms prefer to remain independent of other firms so that their pricing plans can be more flexible over time.
	B.	The collusive firms have an incentive to gain market share at the expense of the other firms by cutting prices.
	C.	The federal antitrust authorities have an easier time catching firms that collude on price rather than quantity.
	D.	none of the above

Answer 1

Answer-Collusion can earn higher prices and higher profits under the Bertrand model, but why is this an unlikely outcome in practice, The correct answer is Option B, the collusive firms have an incentive to gain market share at the expense of the other firms by cutting prices because by the cutting prices before other firms it will give extra advantages to the particular firm which cut down the rate first.

Option A is an incorrect answer because the following statement is likely the outcome of the Bertrand model which defines interactions between firms that set the prices and their customers that choose quantities of commodities at the prices set.

Option C is an incorrect answer because the following statement is likely the outcome of the Bertrand model.

None of these not applicable as option B is a correct answer.