Question

Compare and contrast collusive firms and non- collusive firms

Answer 1

In the study of economics and market competition, collusion takes place within an industry when rival companies cooperate for their mutual benefit. Collusion most often takes place within the market structure of oligopoly, where the decision of a few firms to collude can significantly impact the market as a whole.and Non-collusive oligopoly model (Sweezy’s model) presented in the earlier section is based on the assumption that oligopoly firms act independently even though firms are interdependent in the market. A vigorous price competition may result in uncertainty.

The question that arises now is: how do oligopoly firms remove uncertainty? In fact, firms enter into pricing agreements with each other instead of adopting competition or price war with each other. Such agreement—both explicitly (or formal) and implicit (or informal)—may be called collusion