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An agreement between two duopolists to function as a monopolist usually breaks down because a. they cannot agree on the price that a monopolist would charge. b. they cannot agree on the output that a monopolist would produce. c. each duopolist wants a larger share of the market to capture more profit. d. each duopolist wants to charge a higher price than the monopoly price.

Ask by Wagner Carroll. in the United States
Mar 16,2025

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Each duopolist wants a larger share of the market to capture more profit, leading to the breakdown of the agreement.

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Beyond the Answer

An agreement between two duopolists tends to falter because both parties have a natural inclination to maximize their individual profits. They might start off with a handshake, but when it comes time to divide the pie, each wants a bigger slice, leading to tension and ultimately a collapse of cooperation. Trust issues arise as they worry about the other undercutting them, creating that dreaded competitive spiral! Additionally, the classic dilemma arises when they attempt to set prices. Both duopolists want to benefit from the monopoly profit, but they often can't agree on the exact price, which leads to a strategic game of pricing. Each may hold on to their respective pricing strategies, hoping the other will budge, but that can result in a quick return to fierce competition and profit erosion. It’s a tricky dance on the economic stage!

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