Collusion and Cartels

Question 1

Define collusion?

Answer 1

Firms acting in such a way to avoid strong competition

Question 2

What is Overt collusion?

Answer 2

Firms openly Fix prices, Market share and Price fixing

Question 3

What is Tacit Collusion?

Answer 3

Unspoken agreement to fix prices or divide up a market also illegal in the UK

Question 4

4 benefits to firms of collusion?

Answer 4

Firms can make abnormal profit in the short and long run

Profits used to make barriers to entry

Abnormal profits mean greater dividends to shareholders

Higher profits attract more investment

Question 5

3 negative impacts to firms of collusion?

Answer 5

Collusion leads to inefficiencies.

Encourages competitors to improve products leading to a long-run decline in the firm.

Collusion make customers look for other products so could also cause long run decline.

Question 6

3 Effects of collusion on manufacturers?

Answer 6

Higher cost e.g.oil- OPEC

Search for cheaper substitutes

Look at ways of reducing cost e.g. relocation

Question 7

2 Effects of collusion and price fixing on consumers?

Answer 7

Higher prices for consumers

Search for cheaper products in the long run