In game theory, credible threats can be used to maintain collusive agreements between firms.

Credible Threats

Statements or signs that a negative action could realistically be taken, used as a strategy in negotiations or competitive situations.

Collusive Agreements

Arrangements between firms to limit competition and manipulate markets in their favor, often through setting prices or controlling supply.

Game Theory

A mathematical framework used for analyzing situations in which parties make decisions that are interdependent, often used in economics, political science, and psychology to predict outcomes in strategic interactions.

Comprehend the importance of collusion, behavior of cartels, and instances of cheating in the context of oligopolistic markets.
Determine the elements that influence collusion and the durability of agreements among cartels.

Verified Answer

Iscela PerezJun 13, 2024

Final Answer :

True

Explanation :

In game theory, credible threats are an important mechanism for maintaining collusive agreements between firms, as they can deter deviation from the agreed-upon strategy by making the consequences of such deviation clear and believable.

Learning Objectives

Comprehend the importance of collusion, behavior of cartels, and instances of cheating in the context of oligopolistic markets.
Determine the elements that influence collusion and the durability of agreements among cartels.

In game theory, credible threats can be used to maintain collusive agreements between firms.

Definitions

Learning Objectives

Learning Objectives

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