Oligopoly 3 Flashcards

1
Q

What are the types of collusion

A

Horizontal
Vertical
Explicit V tactic collusion

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2
Q

Key aims of business collusion in an oligopoly

A
  • maximise joint profits
  • lowers the costs of competition
  • reduces uncertainty
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3
Q

When is collusion illegal

A

It doesn’t improve production or distribution of goods or promotes technological progress

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4
Q

When is collusion legal

A

Beneficial to consumers
More information
Innovative and inventive behaviour

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5
Q

What is an open (formal collusion)

A

It is spoken, open or traceable

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6
Q

When is price fixing (collusion) easier

A
When:
Industries are weak
Low penalties for collusion
Participating firms have a high % of total sales 
Strong brands
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7
Q

What is collusion

A

Price fixing

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8
Q

Why do many cartels eventually break down

A

Enforcement problems

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9
Q

How do cartels experience enforcement problems

A

They aim to restrict production to maximise totals profits.

Individual sellers then find it profitable to expand production.

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10
Q

Free riders in cartels

A

Firms who aren’t a part of fetters may benefit by selling just under the cartel price

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11
Q

What undermines a cartel’s control of the market

A

The successful entry of non-cartel firms into the industry

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12
Q

What are whistle-blowing firms

A

Firms previously engaged in a cartel that pass on information to the competition authorities - they expose price-fixing

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13
Q

What happens when trust breaks down within a cartel

A

It is highly likely to come under pressure

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14
Q

Key reasons why many producer cartels are unstable

A
  • falling market demand in a recession
  • over-production by some members
  • exposure by competition authorities
  • entry of non-cartel firms into industry
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15
Q

What does the UK Competition and Markets Authority (CMA) argue

A

That cartels are damaging to economic efficiency and economic welfare

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16
Q

Who argued that cartels are damaging

A

UK Competition and Markets Authority (CMA)

17
Q

Consequences of UK businesses founded to be engaging in price-fixing cartels and other forms of anti-competitive behaviour

A

Can be fined up to 10% of their worldwide turnover.

Up to 5 years imprisonment.

18
Q

Costs of collusive behaviour

A

Damages consumer welfare
Absence of competition hits efficiency
Reinforces the cartel’s monopoly power

19
Q

How does collusive behaviour damage consumer welfare

A

Higher prices
Loss of allocative efficiency
Hits lower income families

20
Q

How does collusive behaviour result in an absence of competition hits efficiency

A

X-inefficiencies leads to higher unit costs
Les incentive to innovate
Output quotas penalise firms who want to expand

21
Q

How does collusive behaviour result in reinforcement of the cartel’s monopoly power

A

It is harder for new businesses to enter the market

22
Q

Potential benefits from collusion

A
  • general industry standards can bring social benefits e.g. pharmaceutical research
  • fairer prices for producer cooperatives in lower and middle income developing countries
  • value of profits
23
Q

What is price leadership

A

Where others usually accept price changes established by a dominant firm and which other firms then follow

24
Q

What is the price that a leader often sets within price leadership

A

Price high enough that the cost-efficient firm in the market may earn some return above the competitive level