Economics Oligopoly Questions
There are two main types of collusion in an oligopoly market: explicit collusion and tacit collusion.
1. Explicit collusion: This occurs when firms in an oligopoly market openly and formally agree to cooperate with each other to restrict competition. They may engage in practices such as price fixing, output quotas, market sharing, or bid rigging. Explicit collusion is illegal in most countries as it leads to anti-competitive behavior and harms consumer welfare.
2. Tacit collusion: This type of collusion happens when firms in an oligopoly market indirectly coordinate their actions without any formal agreement. They may observe and react to each other's behavior, leading to a stable market outcome that resembles a collusive agreement. Tacit collusion can be facilitated through various means, such as price leadership, price signaling, or mutual interdependence. While tacit collusion is difficult to prove and regulate, it can still result in reduced competition and higher prices for consumers.