Th3.4: Collusive and Non-Collusive Behaviour

Question 1

What is collusion?

Answer 1

when firms make collective agreements that reduce competition

Question 2

What is it called when firms don’t collude?

Answer 2

competitive oligopoly

Question 3

If firms work together (collude) what could they do?

Answer 3

maximise industry profits

Question 4

What does collusion reduce?

Answer 4

the uncertainty firms face and reduces the fear of engaging in competitive price cutting or advertising, which will reduce industry profits

Question 5

Despite this, why might firms decide to be a non-collusive oligopoly?

Answer 5

since collusion is illegal and due to the risks of collusion, such as other firms breaking the cartel or prices being set where they don’t want it

Question 6

A firm with a strong business model and something that sets it apart from other firms will…

Answer 6

not want to collude if they feel they can increase market share and/or charge higher prices than competitors

Question 7

When does collusion work best between firms - first three.

Answer 7

there are a few firms which are all well known to each other
firms are not secretive about costs/production methods and that they are similar to others
produce similar products

Question 8

When does collusion work best between firms - final three.

Answer 8

dominant firms which others are happy to follow
market is relatively stable
high barriers to entry