Collusion

Question 1

“unlimited competition may be fine from the point of view speculating about the welfare of people, but surely it is a nuisance from the point of view of the businessman”

Answer 1

Machlup (1952a

Question 2

• NERA (2003) note that the European court outlined three conditions which can sustain tacit co-ordination

Answer 2

1) Transparency so firms can observe each other’s behaviour
2) Musts be an incentive for firms to stick to a common policy and firm that breaks the agreement is worse off rather than better off
3) Potential entry and buyer reactions should not be seen by firms as a potentially destabilising threat.

Question 3

• Personal and social contacts amongst competitors lessen rivalrous attitudes one tends not to undercut those that they socialise with

Answer 3

Machlup (1952b)

Question 4

Cartels as organisations that seek to enhance monopoly power, a a group of producers through combined action

Answer 4

• Liefmann (1932)

Question 5

security rather than maximum profit main reason for cartels.

Answer 5

Asch and Seresca 1976

Question 6

first difficulty of forming a cartel, every firm would prefer to be an outsider, and yet if enough stay outside cartel becomes futile

Answer 6

Stigler (1966)

Question 7

if N is small rather than large, effect is negligible a stable cartel can always be achieved if no. of firms is finite

Answer 7

• D’Aspremont et al (1983)

Question 8

• Evidence that firms join cartels mainly for reasons of self-protection rather than to exploit their customer

Answer 8

Hunter 1954

Question 9

views collusion as a problem of contracting, the ease with which collusion can be established and sustained through contractual agreements depends on a number of factors, e.g. penalties, uncertainty, the ability to specify contractual agreements correctly

Answer 9

Williamson (1975)

Question 10

Find stability is affected by number of firms

Answer 10

Dolbear et al (1968)

Question 11

if N is small rather than large, effect is negligible a stable cartel can always be achieved if no. of firms is finite

Answer 11

• D’Aspremont et al (1983

Question 12

as number of firms increases, each firms contribution to total output falls. Likelihood of ignoring interdependence increases. Risk of detection falls, coordination difficulty increase

Answer 12

Philips (1962)

Question 13

find no significant correlation between no. of firms and degree of collusion

Answer 13

Asch and Seresca (1975)

Question 14

larger firms tend to be more concerned with long-run policies whilst smaller firms are more concerned with exploiting short-run opportunities

Answer 14

Fog (1956)

Question 15

using game theory finds cartel stability is more likely if decision making is sequential rather than simultaneous

Answer 15

• Prokop (1990)

Question 16

assignment of production quotas when the cartel is established can have important implications subsequently for its stability.

Answer 16

Osbourne (1976)

Question 17

negative relationship between the level of advertising and degree of collusion

Answer 17

• Symeonides (2003)

Question 18

argued that collusion is successful when it is accompanied by efficient mechanisms for monitoring compliance with agreement

Answer 18

Stigler (1964)

Question 19

• Stigler (1964) draws the following conclusions
 Collusion is more effective where actual transaction costs are collectively reported in government contracts
 Collusion is less effective when identity of buyers changes frequently
 Effectiveness of collusion varies inversely with the no. of sellers and buyers and the entry of new buyers.

Answer 19

Partial theory of collusion

Question 20

larger buyers effecting cartel agreements

Answer 20

• Synder (1996) and Dick (1996