Chapter 66, Problem 7MCQ

To determine

The correct option that firms are unlikely to do when they engaged in tacit collusion.

Answer to Problem 7MCQ

From the available options, the correct option is to engage in product differentiation.

Explanation of Solution

Firms will be engaged in collusion when there is non-cooperativeness or non-coordination to fix prices and make policies such as forecasting sales. Therefore, when a firm is engaged in tacit collusion then at the same time it can also engage in non-price competition, price leadership, price war, or setting higher prices because if any greatest firm decides the price of all firms or there is any disagreement regarding the maintenance of price then there will be collusion among firms.

But if the firm is engaged in product differentiation, then there would be no collusion because firms can produce similar but non-identical products in the market.

Therefore, the correct option is (to engage in product differentiation) and all other options are incorrect.

Economics Concept Introduction

Introduction: Competitors who collude covertly to coordinate their conduct by agreeing to share information but not explicitly exchanging it are said to be acting in collusion.