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The sugar industry in Canada is effectively a duopoly with two large firms competing with each other ...

The sugar industry in Canada is effectively a duopoly with two large firms competing with each other for market share. Suppose the two firms collude and successfully restrict joint output to that of a profit-maximizing monopolist. As a result, they each realize an increase in their profits. Why would this collusive agreement be difficult to sustain?

▸ Because the firm with the lower long-run average costs will be able to capture all sales, driving the second firm out of the market.

▸ Because each firm has an incentive to break the agreement by further restricting output in order to increase the price, thereby increasing their own profits.

▸ Because a non-cooperative outcome is inevitable in which output is further restricted and each firm's profit is reduced.

▸ Because each firm has an incentive to break the agreement by increasing output in order to increase their own profits.

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Microeconomics

Edition: 17^th

Author: Ragan

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rsteel Author

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I appreciate what you did here, answered it right Smiling Face with Open Mouth

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