3.4.4 Collusions And Cartels Flashcards
1
Q
What is collusive oligopoly?
A
- collective agreement between firms which restrict competition
2
Q
What are the 2 types of collusive oligopoly?
A
- overt
- tacit
3
Q
What is overt collusions?
A
Firms openly agree to cooperate and set prices output levels
4
Q
What is tacit collusions?
A
Firms behaviour in a manner that resembles collusion without any formal agreement
5
Q
Reasons for collusive behaviour??
A
- maximise joint profits
- lowers the costs of competition
- stability
- avoiding price wars
6
Q
Reasons for non collusive behaviour?
A
- competition
- legal restraints
- differences in objectives
7
Q
What are cartels?
A
- a form of over collusion
- formal agreement between producers that limit output in order to manipulate prices
- involves firms acting as a monopoly through an agreement
8
Q
What is price leadership?
A
This is when in some markets dominate firms acts to change prices and others will follow
- as if other firms try to make changes it could set off a price war and the large firm becomes the established leader
9
Q
what are conditions for an effective cartel?
A
- high barriers to entry = to price cannot be undercut
- fewer, larger firms involved
- stronger branding = so consumers can stick with the product despite high price
- easy if there’s no dominant firm leading the group
10
Q
Why is cartel behaviour often unstable?
A
- supernormal profits may attract new firms if barriers to entry aren’t high enough
- incentive for firms to cheat
- if market demand falls = may be over-capacity putting downward pressure on price
