This is an example of one of the assumptions that break down very badly. In the real world, it usually doesn't take just one cheater for the agreement to break down, and the cheating is usually obvious to all participants, and results happen slowly (i.e., it's a repeat game scenario) rather than being a one-time event.
In other words collusion in the real world is MUCH easier than the scenario presented, and yet the students almost managed it anyway.
Suppose that the colluders are three (instead of eight) dominant telecom companies, who want to collude to keep cell phone prices high. Their prices are public knowledge, widely disclosed, and competitors can check each other on a daily basis. Market share - the prize - changes very slowly with changes in pricing - if you drop your prices 5 cents under your competitors, you may eventually win more market share, but it will happen veeeeeeeery slowly.
In this environment price collusion is easy to maintain indefinitely. It would almost be surprising if they weren't colluding.
In other words collusion in the real world is MUCH easier than the scenario presented, and yet the students almost managed it anyway.
Suppose that the colluders are three (instead of eight) dominant telecom companies, who want to collude to keep cell phone prices high. Their prices are public knowledge, widely disclosed, and competitors can check each other on a daily basis. Market share - the prize - changes very slowly with changes in pricing - if you drop your prices 5 cents under your competitors, you may eventually win more market share, but it will happen veeeeeeeery slowly.
In this environment price collusion is easy to maintain indefinitely. It would almost be surprising if they weren't colluding.