In this article we will discuss about collusive oligopoly and how is price determined in this oligopoly. When there is product differentiation, i.e., differentiated oligopoly, two or few sellers may recognise that their prices are closely interrelated. Since each firm is a price-searcher, each will guess and learn from experience that as and when it cuts its price, its rivals [...]
In a model of collusive oligopoly, we discuss the economics of agreement between the firms in an undifferentiated oligopolistic industry. When these firms get together and agree to set prices and outputs so as to maximise total industry profits, they are known as a cartel. Assumptions of the Cartel Model: For the sake of simplicity, we shall make here the [...]
Another form of collusion is price leadership. In this form of coordinated behaviour of oligopolists one firm sets the price and the others follow it because it is advantageous to them or because they prefer to avoid uncertainty about their competitors' reactions even if this implies departure of the followers from their profit-maximizing position. Price leadership is widespread in the [...]