Collusions: Bertrand Solution to the “Indistinguishability Theorem” Represented by the Cournot Duopoly, and the Great Prisoner’s Dilemma

Abstract

Collusive agreements are the most attractive topic in the industrial economics. Tacit collusions of prices results when different fi rms set identical prices, without ever meeting to discuss prices, whereby competitors recognize that is in all their best interest to avoid price competition. Because of the prisoners dilemma it is diffi cult to maintain collusive agreements for long period even though, some successful collusive agreements (tobacco, steel, cement, electrical equipment, oil) existed for decades. Overt collusion or explicit collusion in the United States is illegal Sherman Act (Section2). Cartels tend to be unstable, MC > MR for each member cartel members have the incentive to increase output.