Suppose there are four large manufacturers of toilet tissue. The largest of these manufacturers announces that it will raise its prices by 15 percent due to higher paper costs. Within three days, the other three large toilet tissue manufacturers announce similar price hikes. Would this decision to raise prices be evidence of explicit collusion among the four companies? Briefly explain.

An oligopolistic market is characterized by the presence of a small number of firms that have significant control over market prices and output. In such environments, the actions of one firm can greatly affect the others, often leading to a high degree of interdependence among competitors. Because there are only a few players, each firm must consider the potential reactions of its rivals when making decisions about pricing, production, and marketing strategies.

One common occurrence in oligopolistic markets is the adherence to price points set by competitors, a practice sometimes resulting from what is called 'implicit collusion', which can happen without any explicit agreement. Firms in an oligopoly may avoid price wars by matching price changes made by rivals, effectively maintaining stable prices across the market. This strategic behavior helps firms avoid the uncertainties and potential losses associated with aggressive price competition.

Price leadership occurs when one firm, often the largest or the most dominant in an industry, informally sets the price level that the other firms in the market follow. This implicit form of coordination is not illegal, unlike explicit collusion, and is often observed in oligopolistic markets where firms prefer to maintain industry stability rather than engage in price wars.

In price leadership, the leading firm effectively becomes the 'price setter' and others, the 'price takers'. When the price leader changes its prices, other firms in the industry quickly adjust their own prices to match. This tactic allows smaller firms to avoid the cost and risk of setting their own prices and enables the industry to maintain higher profit margins. The price leader's actions provide a focal point around which other firms can coordinate their pricing strategies without direct communication.

Implicit collusion refers to a situation where firms in an oligopoly indirectly coordinate their actions without an explicit agreement or communication. Unlike explicit collusion, it does not involve direct negotiation or a formal arrangement to fix prices or output levels. Implicit collusion often takes the form of price matching or follow-the-leader behavior, as seen in price leadership models.

One indicator of implicit collusion can be the quick adjustment of prices by firms in response to price changes initiated by one company in the industry. The key factor differentiating it from explicit collusion is the absence of documented agreements among firms to fix prices or other market variables. Implicit collusion can occur naturally in a market with few competitors, as firms tend to read and react to each other's pricing signals in a consistent pattern, maintaining market stability and preserving profits without engaging in illegal activities.