3.4.4 Game theory

What factors make collusion more likely

• Being in an Oligopoly

• Fewer firms in an industry

• Price of a commodity is readily gauged by all firms

Explain the Reasons for Collusion

• Lower Consumer Surplus, higher prices and greater profits

• They can maximise their benefits and limit output

• Stable mature industries (e.g steel)

• High Barriers to entry

What is Overt Collusion

A formal agreement made between firms such as price fixing

What is Tacit Collusion

No formal agreement but collusion is implied(e.g supermarket industry firms compete in price war)

What is a Cartel

Group of 2 or more firms have agreed to control prices, limit output or prevent entrance of new firms into the market

Price leadership

One Firm changes their prices and other firms follow