what are types of collusion
Answers
Collusion occurs when rival firms agree to work together – e.g. setting higher prices in order to make greater profits. Collusion is a way for firms to make higher profits at the expense of consumers and reduces the competitiveness of the market.
collusion
In the above example, a competitive industry will have price P1 and Q competitive. If firms collude, they can restrict output to Q2 and increase the price to P2.
Collusion usually involves some form of agreement to seek higher prices. This may involve:
Agreeing to increase prices faced by consumers.
Deals between suppliers and retailers. For example, vertical price-fixing e.g. retail price maintenance. (For example, Fixed Book Price (FBP) set the price a book is sold to the public.
Monopsony pricing – where retailers collude to reduce the amount paid to suppliers. For example, a retailer with great buying power (Walmart, Amazon) can offer very small profit margins to suppliers as they have little alternative.
Collusion between existing firms in an industry to exclude new firms from deals to prevent the market from becoming more competitive.
Sticking to output quotas and higher prices.
Collusive tendering. For example, ‘cover prices’ for competitive tendering in bidding for public construction contracts. This is when a rival firm agrees to set artificially high price to allow the firm of choice to win with a relatively high contract offer.
Types of collusion
Formal collusion – when firms make formal agreement to stick to high prices. This can involve the creation of a cartel. The most famous cartel is OPEC – an organisation concerned with setting prices for oil.
Tacit collusion – where firms make informal agreements or collude without actually speaking to their rivals. This may be to avoid detection by government regulators.
Price leadership. It is possible firms may try to unofficially collude by following the prices set by a market leader. This enables them to keep prices high, without ever meeting with rival firms. This kind of collusion is hard to prove whether it is unfair competition or just the natural operation of markets.
Problems of collusion
Collusion is seen as bad for consumers and economic welfare, and therefore collusion is mostly regulated by governments. Collusion can lead to:
High prices for consumers. This leads to a decline in consumer surplus and allocative inefficiency (Price pushed up above marginal cost)
New firms can be discouraged from entering the market by types of collusion which act as a barrier to entry.
Easy profits from collusion can make firms lazy and avoid innovation and efforts to increase productivity.
Industry gets the disadvantages of monopoly (higher price) but none of the advantages (e.g. economies of scale)
Answer:
Elastic and non elastic
Explanation:
in elastic both kinetic energy and momentum are vonserved where as in in elastic only momentum is conserved