Advantages And Disadvantages Of Collusion

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Industry characteristics and possibility of collusion
Introduction
Collusion refers to a secret decree amongst the firms that are competing for market domination through cases of price market control (Peng 225). The core reason for the concealment is attributed to the fact that the behavior is deemed to be illegal through the antitrust laws in various nations. Collusion is core characteristics in the oligopolistic firms. The interdependent process of making decisions and intense rivalry encourages such firms in working together. Amongst the most significant way of reducing the competition is through joining through a process named as collusion. There are two main types of collusion.
a. explicit Collusion:
This

To scare the new entrants, the existing firms might decide to collude (Peng 228). The drawback for the firms that are colluding is that the high economic profit often tempts other organizations to venture into the industry. In the event that the other firms are usually prevented to venture the industry by the high barriers of entry, and then the organizations that are colluding can keep high prices without the competitive

Many firms With the increases of organization in an industry, it is relatively difficult for an organization to organize, communicate and successfully collude. The lower the concentration of organizations in the market, the lower the incentives for the firms to collude; the organization in a market that is lowly concentrated shall have a tendency of colluding since the profits are evenly distrusted amongst the many firms.
2. Lack of industry price leader
Price leadership is a situation whether the price and the changes in the prices are usually established by the leading firm or a firm that accepted by the others (Peng 228). Hence, other organization within the industry follows and adopts the industry. During the time that the price leadership is adopted to enable collusion, the leader in the price shall have a tendency of setting a price which is high enough that the firms that are least cost efficient on the market might be able to earn return above the level of competition. Nonetheless, the lack of a company that is poised as the leader and that which sets the prices might reduce the possibility of the firms to collude. Further on, avoiding the process of price cutting and failing to attack other firms market can help minimize