Question

Collusion is_____

O buyers acting in unison against a company in efforts to change its practices.
O the act of firms undercutting one another in competition until zero profits are earned.
O the act of firms working together to make decisions about price and quantity.
O all of these statements are true.

Answer 1

Collusion is the act of oligopoly firms in a market working together to set prices and output, thus reducing competition and acting similarly to a monopoly. It is considered illegal anti-competitive behavior and is enforced against by antitrust laws.

Step-by-step explanation:

Collusion occurs when oligopoly firms in a market work together to control prices and output, behaving similarly to a monopoly. This collaborative activity allows the firms to reduce industry output, set higher prices, and share the resulting profits amongst themselves. Such behavior is considered anti-competitive and is illegal in many countries, including the United States, as it violates antitrust laws.

A formal agreement between firms to collude is known as a cartel, which is also subject to legal enforcement aimed at preventing such anti-competitive practices. Antitrust authorities, like the Antitrust Division of the Justice Department and the Federal Trade Commission in the U.S., are tasked with preventing collusion to ensure fair competition in the marketplace.

Additionally, antitrust cases often involve companies trying to circumvent restrictions through tactics such as bundling, tie-in sales, and predatory pricing.