c) Collusion

c) reasons for collusive and non-collusive behaviour

collusion = when firms work together to fix prices and restrict output

overt collusion = when firms explicitly agree to collude

• price fixing

• output quota

• cartels

tacit collusion = when firms monitor and follow each others pricing/output

• price leadership

reasons to collude

• higher profit

• interdependence

• less competition

reasons not to collude

• incentive to cheat

• difficulty enforcing

• illegal

effects of collusion

• high prices

• artificial scarcity

• poor quality goods and services

• less investment