Chapter 27: Q. 1- For Critical Thinking (page 619)

Why do you suppose that assigning market shares, regions, or customers and exchanging sales information are the most common means of coordinating collusion?

Short Answer

Expert verified

Collusion is indeed a non-competitive, secretive, and sometimes illegal agreement between competitors to disrupt market equilibrium. This may include: consented to raise consumer prices, supplier-retailer deals, and monopoly pricing, in which retailers band with each other to reduce the amount paid to suppliers.

Step by step solution

01

Introduction.

When an individual or organization decides to satisfy a need or urge by exchanging money, goods, or services, an exchange process occurs. It's as simple as that, and you engage in exchange relationships all the time.

02

Coordinating collusion.

Complicity is a non-competitive, secretive, and sometimes illegal agreement between competitors to disrupt market equilibrium.

Collusion occurs when people or businesses that would normally compete with one another conspire to work together just to gain unfair market advantage.

03

Reason for Coordinating collusion.

Collusion allows firms to increase profits at the expense of consumers while decreasing market competitiveness.

This could include:

  • Agreeing to raise prices for consumers.
  • Suppliers and retailers make deals.
  • Monopoly pricing occurs when retailers band together to reduce the amount paid to suppliers.

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Most popular questions from this chapter

An years past, firms around the world have secretly engaged in collusive agreements to restrain production and push prices above competitive levels.

Evidence compiled by government officials investigating such agreements has revealed that conspiring firms often utilize similar methods of establishing and enforcing collusive restraints of trade. Most agreements, for instance, assign to each firm an allowed market share, a permitted region of operations, or an approved set of customers. In addition, participating firms commonly are required to exchange sales information so that they can monitor adherence to their agreements to restrain trade. In this chapter, you will learn why firms that typically utilize these techniques to formulate and maintain collusive agreements engage in secret conspiracies: Such agreements are illegal under U.S. antitrust laws.

Recognize the practical difficulties in regulating the prices charged by natural monopolies

The manager of a Pittsburgh shop wishes to sell on eBay a used telescope that is in good condition. The manager knows that prospective buyers perceive a 50-50 chance that the telescope is in good condition. If it is, buyers are willing to pay \(1,000, but if it is in poor condition, they will pay only \)200. What is the average amount a buyer will be willing to pay? Is there a lemons problem? Explain.

Local cable television companies are sometimes granted monopoly rights to service a particular territory of a metropolitan area. The companies typically pay special taxes and licensing fees to local municipalities. Why might municipality give monopoly rights to a cable company?

A local cable company, the sole provider of cable television service, is regulated by the municipal government. The owner of the company claims that she is normally opposed to regulation by government, but asserts that regulation is necessary because local residents would not want a large number of different cables crisscrossing the city. Why do you think the owner is defending regulation by the city?

Consider the data from Problem 27-11. Suppose that antitrust authorities have determined that the relevant market includes both e-books and physical books. These authorities perceive that a monopoly situation exists that can be challenged on legal grounds if the value of the Herfindahl-Hirschman Index exceeds 5000. On the basis of this criterion, do the antitrust authorities conclude that there are grounds for a legal challenge? Explain.

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