CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

Firms in an oligopoly are less likely to collude when ______
A. detection of cheaters is easy.
B. market demand is relatively stable.
C. there are more firms in the industry.
Explanation: If firms can easily detect cheaters, they can retaliate; this helps maintain collusive agreements. When firms bid for contracts and those bids are closed, cheaters cannot be easily detected because the winning bid is not publicly announced. When there are more firms in the industry, the costs of forming a cartel and reaching an agreement are much higher, making it less likely that the firms will collude.

User Contributed Comments 5

User Comment
sonderfall Why is A wrong?
jam99003 Because if you can detect cheaters more easily and act accordingly, you would be more likely to collude. IF you can't detect cheaters, you are less likely to collude b/c you wouldn't know who's cheating you.
birdperson sonderfall -- think OPEC -- if they could catch the "cheaters" (those that produce more than they were supposed to), their collusion would operate much more effectively
alexchav Maybe it should say detection from other colluded producers, am I right?
farhan92 alexchav - that is correct. I would have thought the detection of cheaters related to the sherlock holmes and inspector gadgets not other firms!
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