What does "cheating" refer to in the context of oligopolistic behavior?

In the context of oligopolistic behavior, "cheating" typically refers to a situation where a firm decides to undercut the prices of its competitors, even though there may be an implicit or explicit agreement among firms to maintain certain price levels. This can occur in an oligopoly where a small number of firms dominate the market, and they often engage in cooperative behaviors, such as price-fixing or forming cartels, to maximize their joint profits. When one firm deviates from this understanding by lowering its prices significantly, it is seen as cheating because it disrupts the agreed-upon price stability and can lead to price wars.

Undercutting prices can attract more customers away from competitors, leading to a potential increase in market share for the firm that chooses to cheat. This behavior poses a risk to the stability of the oligopoly since it might encourage other firms to retaliate, prompting everyone to reduce prices, which can ultimately hurt all firms involved.

The other options—collaborating with others, enhancing product quality, and innovating new technologies—do not align with the concept of cheating in this context. Collaboration is more about maintaining consensus and cooperative strategies rather than undermining them. Enhancing product quality and innovating are generally viewed as positive competitive