For both players, the decision to betray the partner by confession has a strategic dominance in this situation; this is the best strategy for each player, regardless of what the other player is doing. So this set of strategies is a balance of Nash in the game – no player would be better off if he changes strategy. As a result, all selfish prisoners would betray each other, which led to two years in prison for both. This result is not optimal pareto; it is clearly possible to improve outcomes for both sides through cooperation. If both players had denied the crime, they would only spend one year in prison at a time. How did this soap opera end? Following an investigation, the French antitrust authorities fined Colgate-Palmolive, Henkel and Proctor and Gamble for a total of 361 million euros (US$484 million). Ice manufacturers have had a similar fate. Ice bags are a commodity, a perfect substitute that is usually sold in 7 or 22 pound bags. No one cares about the label on the bag.
By agreeing to cut out the ice market, control large geographic areas and set prices, ice cream manufacturers have moved from perfect competition to a monopoly model. Under the agreements, each company was the sole supplier of ice bags in an area; Both in the long term and in the short term, there have been benefits. According to the court, these companies conspired illegally to manipulate the market. The fines were about $600,000 — a large fine considering that a bag of ice is sold for less than $3 in most parts of the United States. In the United States and many other countries, it is illegal for companies to meet because collusion is anti-competitive behaviour, which is a violation of cartel and abuse of dominance rules. Both the Department of Justice`s Department of Understanding and the Federal Trade Commission are responsible for preventing cartels in the United States. The Bertrand model describes the interactions between companies that compete for the price. Companies set maximum prices in response to what they expect from a competitor. The model is based on the following assumptions: an agreement is an agreement between competing companies to obtain higher profits.
Agreements generally occur in an oligopolistic industry where the number of sellers is low and the products marketed are homogeneous. Cartel members can agree on price fixing, total industry production, market share, customer distribution, allocation of territories, supply manipulation, creation of common distribution agencies and profit sharing. OPEC: OPEC oil-producing countries have been working temporarily to raise global oil prices to achieve a stable income. For example, game theory may explain why oligopolies have difficulty maintaining collusive agreements to generate monopoly gains. While together, companies would be better off if they worked together, each company has a strong incentive to defraud and under-coerce competitors in order to increase their market share.