How likely is it that the firms can reach a cooperative arrangement and agree to maintain high prices? Below is a partial list of factors which facilitate collusion.
- Fewer firms
- Fewer decision makers that must agree. It's like deciding what to get on a pizza.. the more people involved the more likely someone is to want Pineapple.
- Lax enforcement of anti-trust law
- Just like you can tell where there are fewer patrols on a stretch of highway by the average speed you can partially judge anti-trust enforcement efforts by similarity of pricing.
- Similar production costs
- If one firm has lower production costs than the others it may wish to take advantage of this to increase market share by pricing lower than the others can afford.
Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved