Collusions And Cartels

• What is collusion in the context of firms?

  Collusion is when firms work together.
• What types of agreements might firms reach in collusion?

  Agreements on prices, quotas, and market allocation.
• What are the two types of collusion?

  Tacit and overt/open collusion.
• Why are many forms of open collusion illegal in the UK and EU?

  They violate Competition Law.
• What is the most famous cartel mentioned in the material?

  OPEC (Organisation of Petroleum Exporting Countries).
• What makes tacit collusion difficult to prove?

  There is usually no formal agreement in place.
• What conditions make collusion more likely to succeed?

  Few firms, similar production methods, and stable markets.
• What role do barriers to entry play in collusion?

  They reduce fear of disruption from new entrants.
• What happens if individual producers cheat in a cartel?

  It can lead to excess supply and price drops.
• Why is it important for all major producers to be members of a cartel?

  To act as a monopolist and succeed.
• How does the CMA's approach to fines affect collusion?

  Low fines may encourage firms to collude.
• What is tacit collusion?

  Actions that minimize competitive responses without explicit agreements.
• What is price leadership?

  A situation where a dominant firm sets prices.
• What is the difference between overt and tacit collusion?

  Overt collusion involves formal agreements; tacit does not.
• What is price fixing?

  Agreeing to charge the same price to increase revenues.
• How do cartels share the market?

  By dividing it geographically or demographically.
• What is bid-rigging?

  Discussing bids to ensure higher prices than competition.
• What is the temptation for individual oligopolists in a cartel?

  To cheat by cutting prices or increasing output.
• What happens if all firms in a cartel cheat?

  It leads to excess supply and price collapse.
• What are the key characteristics of a cartel?

  • Formal collusive behavior among firms
  • Control over market supply and prices
  • Joint profit maximization
  • Market sharing agreements
  • Monitoring of output levels
• Why might firms in an oligopoly enter collusive behavior?

  To act as a monopoly and stabilize prices.
• What is the impact of price fixing on consumers?

  It leads to higher prices and lower output.
• How can collusion benefit consumers in some cases?

  It can lead to stable prices and investment in R&D.
• What are the potential social benefits of collusion in demerit goods?

  Higher prices may reduce consumption of harmful goods.
• How does collusion affect advertising costs for firms?

  It reduces the need for large advertising expenditures.
• What is the argument for oligopolies improving productive efficiency?

  They can cooperate on R&D and reduce costs.
• What is the role of joint investment in a cartel?

  It decreases production costs and fosters innovation.