Answer to Question #118641 in Economics of Enterprise for Shweta

Question

discuss oligopoly behavior in detail with reference to collusion and the role that the south african competition act 89 of 1998?

Answer 1

• With collusion,oligopolistic firms remain legally independent but they enjoy the benefits of cooperation.This occurs when two or more firms secretly agree to control price and production.
• Collusion can take place in two forms; explicit and implicit whereby explicit results when two or more firm reach a formal agreement while implicit results when two or more firms informally control the market with necessarily reaching a formal agreement.
• oligopoly firms may collude to set a price or output level for a market in order to maximize profits
• collusive arrangements are generally illegal among firms to control price and production and there is a threat that firms may defect and undermine the others in arrangement
• oligopolistic firm tend to keep prices relatively constant,preferring to compete in ways that do not involve changing the price
• oligopolistic firms perpetually balance the need for competition against the benefits of cooperation through merger control
• because oligopolistic firms realize that price competition is ineffective, they rely on non price methods of competition such as advertising