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Nomad comments on Three Parables of Microeconomics - Less Wrong
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I suppose the cycle of increasing prices could be broken in one of two ways in a purely economic way: 1) The increasing profits either increases the benefit for the the gas stations to break the truce and slightly lower prices again (or for a new competitor to do the same). 2) The vast majority of cars entering the town are not desperate for fuel (or at least not so desperate as to be extorted) but are merely considering getting fuel here. Without knowing it, the gas stations are actually in competition with the gas stations of neighbouring towns.
This was a toy example, there is no context to it and so little opportunity to speculate on how could this situation develop further. Implicit collusion is not unheard of in real life and could be broken in a variety of ways (including government agents showing up and asking questions).