3.4.4 Collusions And Cartels

Question 1

What is collusive oligopoly?

Answer 1

• a situation on which a small number of firms within an industry coordinate their actions to maximise joint profits

Question 2

What are the 2 types of collusive oligopoly?

Answer 2

• overt
• tacit

Question 3

What is overt collusions?

Answer 3

Firms openly agree to cooperate and set prices output levels

Question 4

What is tacit collusions?

Answer 4

Firms behaviour in a manner that resembles collusion without any formal agreement

Question 5

Reasons for collusive behaviour??

Answer 5

• maintains high prices
• stability
• avoiding price wars

Question 6

Reasons for non collusive behaviour?

Answer 6

• competition
• legal restraints
• differences in objectives

Question 7

What are cartels?

Answer 7

Form of over collusion
- formal agreement between producers that limit output in order to manipulate prices

Question 8

What is price leadership?

Answer 8

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