Discussion
Assertion (A) : There is a natural tendency to collude under oligopoly.
Reason (R) : Inter-dependence of firms in oligopolistic markets.
Codes :
Answer: B
Both statements are correct, and the reason is the correct explanation, so (B) is the key. Under oligopoly there are few firms and each of them knows that its price and output affect the others and that the others will react. This inter-dependence makes rivalry costly and leads firms towards a collusive agreement, overt as in a cartel or tacit as in price leadership. So the inter-dependence explains the tendency to collude, and (A), (C) and (D) are wrong.
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