What is meant by collusive oligopoly?
What is meant by collusive oligopoly?
Collusive oligopoly is a form of the market, in which there are few firms in the market and all of them decide to avoid competition through a formal agreement. They collude to form a cartel, and fix for themselves an output quota and a market price. Sometimes a leading firm in the market is accepted by the cartel as a price leader. Members of the cartel accept the price as fixed by the price leader.
Two main features of oligopoly are as below:
(i) Few Firms: A few firms, but large in size, dominate the market for a commodity. Each firm commands a significant share of the market and can impact market price of the product through its independent price-output policy.
(ii) Barriers to the Entry of Firms: There are various barriers to the entry of new firms. These barriers are almost similar to those under monopoly. Patenting is the most important form of entry-barrier. Entry of the new firms is extremely difficult, if not impossible.
Collusive oligopoly is a form of the market, in which there are few firms in the market and all of them decide to avoid competition through a formal agreement. They collude to form a cartel, and fix for themselves an output quota and a market price. Sometimes a leading firm in the market is accepted by the cartel as a price leader. Members of the cartel accept the price as fixed by the price leader.
Two main features of oligopoly are as below:
(i) Few Firms: A few firms, but large in size, dominate the market for a commodity. Each firm commands a significant share of the market and can impact market price of the product through its independent price-output policy.
(ii) Barriers to the Entry of Firms: There are various barriers to the entry of new firms. These barriers are almost similar to those under monopoly. Patenting is the most important form of entry-barrier. Entry of the new firms is extremely difficult, if not impossible.
