Question

Nola and Charles both own party planning firms in the small town of Trident, IA. Because they are the only party planners in town, they want to collude to make the price of party planning high. Classify the scenarios according to whether they are more likely to help or impede Nola and Charles colluding.
Helps collusion Impedes collusion
1. Charles develops a signature appetizer that becomes the must have in Trident
2. A party planning school opens and the new graduates are ready to plan!
3. Nola lowers her price on national television
4. Nola and Charles are regulars at the same coffee house. They talk regularly
5. Charles and Nola both charge a fixed per person price for a party
6. Nola's marginal cost is lower than Charles's.
7. Most of the parties are given by Trident's largest employer, a water bottling plant

Answer 1

Answer:

Nola and Charles Collusion at Trident, IA.

Helping or Impeding Scenarios:

Helping Scenarios:

4. Nola and Charles are regulars at the same coffee house. They talk regularly

5. Charles and Nola both charge a fixed per person price for a party

Impeding Scenarios:

1. Charles develops a signature appetizer that becomes the must have in Trident

2. A party planning school opens and the new graduates are ready to plan!

3. Nola lowers her price on national television

6. Nola's marginal cost is lower than Charles's.

7. Most of the parties are given by Trident's largest employer, a water bottling plant.

Explanation:

Nola and Charles can only enter a collusion agreement secretly because it is illegal.  Since the agreement is secret, it is not enforceable in the court of law.  The tendency for Nola and Charles to be entangled in the prisoner's dilemma is very high.  It is also not possible for them to protect their collusion for very long because they have different cost bases and core competencies that derail collusion on a sustainable large scale.  Graduates of party organization and other market participants, including the large firm that hosts most of the parties in the area will end the collusion before long.