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

• cartels

• price fixing

• output quotas

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

• price leadership = when firms follow the pricing of the dominant firm

the reasons to collude

• higher profit

• less competition

• interdependence

the reasons not to collude

• it is illegal

• it is difficult to enforce

• there is an incentive to cheat

effects of collusion

• high prices

• less investment

• artificial scarcity

• low product quality