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Collusion and Game Theory. Collusion occurs when oligopoly firms make joint decisions, and act as if they were a single firm. Collusion requires an agreement, either explicit or implicit, between cooperating firms to restrict output and achieve the monopoly price. This causes the firms to be interdependent, as the profit levels of each firm ...
- Oligopoly Models
Other oligopolies may behave more like Cournot oligopolists,...
- Oligopoly Models
Collusive oligopoly. Firms colluding can result in outcomes similar to a monopoly. Because of this, consumers are likely to have lower consumer surplus and producers will have higher producer surplus. Firms colluding on price will restrict their output and raise their prices closer to the profit maximising level (marginal cost equals marginal ...
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Evaluate the view that collusion between firms in an oligopoly always works against consumer and society’s interests. Use game theory in your answer.
An oligopoly is where the industry or market is dominated by a few producers/firms with a high level of market concentration, where the component firms have a high level of interdependent decision making. Collusion can be tacit and/or explicit, and the aim of which is to achieve higher supernormal profits, with the firms as a whole achieving joint ...
However, collusion between firms can often derive benefits for consumers. For instance, tacit collusion includes firms who monitor what other firms sell to ensure that they are matching the cheapest price in a geographical area, or who market that consumers are “never knowingly undersold” such as John Lewis. This is a case in which firms are techni...
Collusion in an oligopoly can hugely benefit firms, which can have beneficial consequences for society. For instance, collusion between coffee growers allows small firms to push for fairer prices against more dominant monopsonistic corporations such as Starbucks. Furthermore, because these producer cooperatives like Fairtrade are often based overwh...
However, the extent to which this occurs depends on a few factors. Firstly, the vast majority of collusion that takes place isn’t that of poor farmers working together - oligopolies are more concentrated industries with very high barriers to entry, such as the Big Four Accountancy Firms, and pharmaceutical companies. Furthermore, the benefits that ...
In conclusion, the extent of the impact on consumers and firms depends fundamentally on how long the oligopoly is able to carry on collusion - we can analyse this through game theory. Assuming the following pay offs in a cartel such as OPEC, where states agree to collude to reduce production levels and benefit from a higher price: If all firms coop...
cartel: a group of firms that collude to produce the monopoly output and sell at the monopoly price. collusion: when firms act together to reduce output and keep prices high. cut-throat competition: oligopolistic outcome when firms decide to cut prices to capture market share; in the limit, this leads to zero economic profits.
When oligopolies result from patented innovations or from taking advantage of economies of scale to produce at low average cost, they may provide considerable benefit to consumers. Oligopolies are often buffeted by significant barriers to entry, which enable the oligopolists to earn sustained profits over long periods of time.
Jul 17, 2023 · Key Points. Firms in an oligopoly may collude to set a price or output level for a market in order to maximize industry profits. At an extreme, the colluding firms can act as a monopoly. Oligopolists pursuing their individual self-interest would produce a greater quantity than a monopolist, and charge a lower price.
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oligopoly markets are subject to antitrust regulation aimed at preventing collusion, price-fixing, and other anti-competitive behavior. Government agencies monitor and enforce these regulations to promote fair competition and protect consumers. Economic Stability: Oligopoly markets can contribute to economic stability by maintaining
