collusion

Examples of collusion in the following topics:

• Collusion and Competition

  • Firms in an oligopoly can increase their profits through collusion, but collusive arrangements are inherently unstable.
  • Several factors deter collusion.
  • First, price-fixing is illegal in the United States, and antitrust laws exist to prevent collusion between firms.
  • Finally, a firm may be discouraged from collusion if it does not perceive itself to be able to effectively punish firms that may break the agreement.
  • In contrast to price-fixing, price leadership is a type of informal collusion which is generally legal.

• Price Leadership

  • Price leadership is a form of tacit collusion that oligopolies may use to achieve a monopoly-like market outcome.
  • An alternative to overt collusion is tacit collusion, in which firms have an unspoken understanding that limits their competition.
  • For example, the steel, cars, and breakfast cereals industries have all been accused of engaging in tacit collusion..
  • Tacit collusion can be difficult to identify.
  • The fact that a price change by one firm is follwed by similar price changes among other firms doesn't necessarily mean that tacit collusion exists.

• Cartel Example

  • A cartel is a formal collusive arrangement among firms with the goal of increasing profits.
  • Assess the role of competition and collusion in the formation of cartels

• Game Theory Applications to Oligopoly

  • For example, game theory can explain why oligopolies have trouble maintaining collusive arrangements to generate monopoly profits.
  • Because the incentive to defect is strong, firms may not even enter into a collusive agreement if they don't perceive there to be a way to effectively punish defectors.

• Antitrust Laws

  • This was more recently updated via the Treaty of Lisbon, which further addresses mergers and acquisitions and bans price fixing and collusion.

• Market Power

  • If no individual participant in the market has significant market power, then anti-competitive behavior can take place only through collusion, or the exercise of a group of participants' collective market power.

• Duopoly Example