Explain whether each of the following characteristics will increase or decrease the likelihood that a firm will collude with other firms in an oligopoly to restrict output.
The firm’s initial market share is small. (Hint: Think about the price effect.)
The firm has a cost advantage over its rivals.
The firm’s customers face additional costs when they switch from one firm’s product to another firm’s product.
The firm and its rivals are currently operating at maximum production capacity, which cannot be altered in the short run.