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Collusion may be a feature of an oligopolistic market - Leaving Cert Economics - Question 4 - 2013
Question 4
Collusion may be a feature of an oligopolistic market. Explain what is meant by 'collusion'. Collusive practices may be undermined by price wars. Outline two benefi... show full transcript
Worked Solution & Example Answer:Collusion may be a feature of an oligopolistic market - Leaving Cert Economics - Question 4 - 2013
Step 1
Explain what is meant by 'collusion'.
Answer
Collusion refers to an agreement among firms in the same industry to coordinate their actions, often to control prices or limit production, for their mutual benefit. This typically occurs in oligopolistic markets where a few firms dominate the market.
In collusion, rival sellers may agree to set prices at a certain level, thereby avoiding competition with one another. The aim is to increase their profits by reducing uncertainty and eliminating price wars, which often leads to higher prices for consumers.
Step 2
Outline two benefits of price wars for the consumer.
Answer
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Lower prices / value for money
- Consumers benefit from the availability of commodities at lower prices, leading to better value for their limited income.
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Higher disposable income
- With lower prices, consumers will have a higher disposable income, resulting in a better standard of living.