A Collusive Agreement To Fix Prices Among Firms

Like the prisoner`s dilemma, cooperation in an oligopoly is difficult to maintain, because cooperation is not in the best interests of the various actors. However, the collective bottom line would be improved if companies cooperated and were thus able to maintain low production, high prices and monopolistic profits. OPEC: OPEC oil-producing countries have been working temporarily to raise global oil prices to achieve a stable income. The answer you`re looking for is A). When new businesses easily enter the sector, barriers to entry are, as we know, low. As a result, consumers will have more choice and will most likely purchase goods from the company that offers the lowest prices rather than a product manufactured under an agreement. Companies in an oligopoly can increase their profits through collusion, but collusive agreements are inherently unstable. Will a collusive agreement on price-fixing between companies in an oligopolistic industry most likely be broken under which the following conditions? How can companies get together without ever meeting? In a competitive environment, each company will market its products until the marginal cost of producing the last product is equal to the selling price. However, if everyone limits production, the price is rising and companies can each benefit from the profits of oligopoly. A company can advertise its price and production, which competitors might consider higher than sustainable in a competitive situation. You can choose to follow this example.

Such decisions are difficult to bear in large markets with many sellers, because it is in everyone`s interest to sell at a slightly lower price, produce more and withdraw more from the market. As soon as a company starts to behave competitively, all companies must follow this example or face the loss of their entire market. Bertrand Duopoly: The diagram shows the reaction function of a company that competes for the price. If P2 (the price set by company 2) is lower than marginal costs, enterprise 1 in marginal prices (P1-MC). If Firm 2 price above MC, but below monopoly prices, company prices 1 just below company 2. When prices are fixed 2 above the monopoly price (PM), fixed price 1 at the monopoly level (P1-PM). Agreements to calculate the monopoly price and provide half the market each are the best thing companies could do in this scenario. However, the Nash balance alone of this model is not the only Nash balance of this model if the marginal costs that are the uncooperative result were not agreed upon and insisted.