Collusive Agreement In Oligopoly

Default is another important deterrent to collusion. A company that initially agrees to participate in an agreement may fail and undermine the profits of other members. In addition, the company can act as a whistleblower and report the agreements to the appropriate authorities. Whether cartel members choose to defraud the cartel depends on the fact that the short-term revenues from the fraud outweigh the long-term losses resulting from the eventual bankruptcy of the cartel. It also depends in part on the difficulty for companies to monitor compliance with the agreement by other companies. If surveillance is difficult, it is likely that a member will get away with fraud for longer; Members would then be more likely to cheat and the agreement would be more unstable. A true duopoly is a specific type of oligopoly in which there are only two producers in a market. There are two major duopoly models: Cournot Duopoly and Bertrand Duopol. The collusion alludes to cooperation between the different companies. This cooperation results in a restriction of competition in the market in each of its forms, resulting in increased profits for companies that penalize the well-being of consumers. An agreement is an example for companies that belong to the same branch structure and are to some extent involved in setting prices and/or production levels.

Agreements whose purpose or effect is to prevent, restrict or distort perfect competition are prohibited. These agreements include activities such as: Collusion is a non-competitive, secret, and sometimes illegal agreement between rivals that attempts to disrupt the market`s balance. The act of collusion involves individuals or companies that would generally compete against each other but conspire to work together to gain an unfair advantage in the marketplace. The sticking parties may jointly decide whether to influence the supply of a product in the market or to accept a certain price level that helps partners maximize their profits at the expense of other competitors. It`s common in duopoly. A traditional example of game theory and the prisoner`s dilemma in practice are soft drinks. Coca-Cola and Pepsi compete in an oligopoly and are therefore very competitive against each other (since they have limited other competitive threats). Given the similarity of their products in the soft drink industry (i.e.

different species of soda), any price differential of a competitor is considered an act of non-compliance or betrayal of an established status quo. Like the prisoner`s dilemma, cooperation in an oligopoly is difficult to maintain, because cooperation is not in the best interests of the various actors.