2. Which of the following factors make it more likely that oligopolists will play noncooperatively? Which make it more likely that they will engage in tacit collusion? Explain.
Each oligopolist expects several new firms to enter the market in the future.
Future entry by several new firms will increase competition and drive down industry profits. As a result, there is less future profit to protect by behaving cooperatively today. So each oligopolist is more likely to behave noncooperatively today.
It is very difficult for a firm to detect whether another firm has raised output.
When it is very difficult for a firm to detect if another firm has raised output, then it is very difficult to enforce cooperation by playing tit for tat. So it is more likely that a firm will behave noncooperatively.
The firms have coexisted while maintaining high prices for a long time.
When firms have coexisted while maintaining high prices for a long time, each expects cooperation to continue. So the value of behaving cooperatively today is high, and it is likely that firms will engage in tacit collusion.