abyssNet and Vortex Optical are the two dominant providers of transoceanic subsea fiber-optic bandwidth. Following a multi-year investigation by the International Communications Commission (ICC), the two firms were fined a combined total of £36 million for colluding to artificially restrict data capacity and inflate wholesale bandwidth prices. Evidence recovered from encrypted messaging channels showed executives coordinating monthly pricing tiers to prevent price wars.
Draw a simple two-firm, two-outcome game theory payoff matrix to represent the pricing dilemma faced by abyssNet and Vortex Optical. Use your matrix to explain why both firms have an incentive to collude, and why such collusion is inherently unstable.
