Lecture 5 Cartel and Collusion.pdf

Lecture 5 Cartel and Collusion.pdf - Lecture 5 Cartel and...

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Lecture 5: Cartel and Collusion
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Outline Collusive Agreements take different forms: Agree on sales price Allocate quotas among firms Divide markets so that firms decide not to be present in certain markets in exchange for being the sole sellers in others. Coordinate their behavior along some other dimensions. Institutional arrangements to sustain collusion includes: A central office takes the decisions. Firms find some form of communication to sustain agreements. Collusive outcome may happen even if firms never discuss prices or exchange information (tacit collusion).
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Outline Collusive agreements allow firms to exert market power they do not have individually, restrict competition, increase prices, and reduce welfare. Most of the countries prohibits collusion. But they differ in their standard of proof required and the treatment of cases where firms manage to keep prices high without overtly colluding Topics: The main mechanisms behind collusion Factors which facilitate collusion
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