Collusion
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Forms of Collusion
1.) Limit Pricing 2.) Output Policy 3.) Sales Territories 4.) Implicit Collusion
4.) Implicit Collusion
Each firm recognises that if they behave as if they were branches of a single firm their joint profits would be higher. So firms do not provoke their rivals.
3.) Sales Territories
Firms could divide up the markets between them and agree not to compete in each other's market segments.
2.) Output Policy
Firms could join together to limit output to certain agreed amounts.
1.) Limit Pricing
One firm with the tacit agreement of others, could reduce prices forcing unwanted entrants out of the industry.
What is Collusion?
When rival firms in an industry come together to influence the market for their mutual benefit.