13. Which of the following factors would make collusion more difficult for the Firms in an oligopolistic industry?
  1. a stable economy. A stable economy make collusion easier to maintain since sales and profits tend to work as expected in a stable economy. Instability will cause firms to worry and change behaviors thus causing collusive agreements to corrode.
  2. a small number of Firms in the industry. The fewer the firms the easier it is to come to agreement either explicity or simply by observing one another's behavoir.
  3. different cost structures for different Firms. If one firm has far lower production costs than others it will be tempted to lower price since it can do this, earn greater market share, and still make a profit at prices that will lead to losses for other firms.
  4. high barriers to entry. High barriers to entry make collusion easier because they ease the concern that high prices will attract new entrants. Such concerns can cause firms to lower prices and thus destroy collusive agreements.
  5. Firms have similar market shares. If firms have simlar market shares there is a reduced likelihood that firms will smaller shares will feel the need to "catch up" with the larger firms.

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