Collusive Agreement in Oligopoly

Collusive agreement in oligopoly is a topic that is often discussed in economics. Oligopolies are markets that are dominated by a few large firms, and collusive agreements occur when these firms make agreements to limit competition, often leading to higher prices for consumers.

Collusive agreements can take different forms, such as price fixing, market sharing, bid rigging, and output control. Price fixing occurs when firms agree to set a specific price for their products or services, while market sharing involves dividing the market between the firms to limit competition. Bid rigging occurs when firms decide among themselves who will win a particular contract, while output control involves limiting the production or supply of a particular good or service to maintain higher prices.

Collusive agreements can harm consumers by reducing competition and increasing prices. When firms collude, they can charge higher prices than they would if they competed with each other. This can result in reduced consumer welfare, as consumers have to pay more for the same product or service.

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The effectiveness of collusive agreements depends on the degree of competition in the market. If there are other firms that are not part of the collusive agreement, they can enter the market and undercut the colluding firms, breaking up the agreement. This is known as competitive pressure.

Regulatory authorities, such as antitrust agencies, have a role in detecting and preventing collusive agreements. They have the power to investigate and prosecute firms that engage in anti-competitive conduct. However, detecting collusive agreements can be challenging, as they tend to be secretive and hidden.

In conclusion, collusive agreement in oligopoly is a serious issue that affects competition and prices in the market. Consumers suffer as a result of the higher prices, and firms can maintain their power over the market. It is essential for regulators to monitor and enforce antitrust laws to prevent anti-competitive behavior and promote fair competition in the market.

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