Question

Explain collusive and non- collusive oligopoly.

Answer 1

Collusive oligopoly refers to a situation where firms cooperate with each other rather than compete in setting price and output. Agreement may be entered to cooperate by raising prices, restricting output, dividing markets or otherwise, with the objectives of restraining competition and to keep their bargaining position stronger against the buyer.

Non-collusive oligopoly refers to the situation where the firms compete with each other and follow their own price and quantity and output policy independent of its rival firms. Every firm tries to increase its market share through competition.