Answer to Question #216389 in Microeconomics for Ida

Question

You are selling a product in an oligopoly market. What factors would motivate you to collude with other firms in the market?

(25 marks)

 

Answer 1

Solution

Being an oligopoly market the following factors lead to collusion

1. To set price in the market or output level in order to maximize industry profits, when the colliding firm acts as a Monopoly.
2. To pursue individual self-interest to produce greater quantity and lower prices than monopoly so as to increase chances of bigger profits.
3. The oligopoly market to act as monopoly reducing individual output and collective output being equal to that of the monopoly in order to increase earned profits.
4. For price leadership where the market becomes the price setters in the industry.