is tacit, where firms implicitly reach an understanding that competition is bad for profits.

Economists have understood for a long time the desire of businesses to avoid competing so that they can

instead raise the prices that they charge and earn higher profits. Adam Smith wrote in Wealth of Nationsin

1776: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation

ends in a conspiracy against the public, or in some contrivance to raise prices.”

Even when oligopolists recognize that they would benefit as a group by acting like a monopoly, each individual

oligopoly faces a private temptation to produce just a slightly higher quantity and earn slightly higher

profit—while still counting on the other oligopolists to hold down their production and keep prices high. If at

least some oligopolists give in to this temptation and start producing more, then the market price will fall. A
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