What is a Collusive Oligopoly?
Collusive oligopoly refers to a situation in which a small number of firms in an industry, known as oligopolists, engage in cooperative behavior to restrict competition and increase their collective profits. Unlike competitive markets where firms compete vigorously against each other, collusive oligopolies involve firms working together, either explicitly or implicitly, to reduce output, fix prices, or divide market share among themselves.
Key Features Of Collusive Oligopoly:
- Working Together: In a collusive oligopoly, companies team up instead of competing. They make deals to set prices, limit production, or divide up markets. This cooperation helps them keep prices high and make more money.
- Setting Prices: They agree on prices together instead of competing to offer lower prices. This means customers might end up paying more because there’s less price competition.
- Dividing Markets: Sometimes, they split up the market among themselves. Each company gets its own share of customers or areas to sell their products. This helps them avoid competing directly with each other.
Difference between Collusive Oligopoly and Non-Collusive Oligopoly
An oligopoly is when a few companies control most of the market. There are two main kinds, collusive and non-collusive. In a collusive oligopoly, these companies work together to limit competition and make more money. But in a non-collusive oligopoly, they compete without any official agreements. This competition can mean lower prices and more choices for customers. Knowing about these types helps us understand how markets work and how they affect both customers and businesses.