Final answer:
Collusion is the cooperation among rival companies within an industry for mutual benefit, especially in oligopolies, to maintain high prices and profits. This can lead to the formation of a cartel, where firms formally agree on production and pricing like a monopoly.
Step-by-step explanation:
The act that takes place within an industry when rival companies cooperate for their mutual benefit is known as collusion. This occurs most notably within oligopolies, a market structure where a few large firms dominate the market. When these firms come together to intentionally reduce output and maintain high prices, they engage in collusion. This process is often in the pursuit of achieving higher profits, resembling a monopolistic situation. Sometimes, these collaborative efforts lead to the formation of a cartel, where companies formally agree to collude to set monopoly-like output and prices.
The concept of collusion illustrates the complex dynamics within oligopolistic markets, as firms weigh the benefits of competition against those of cooperation. It's a strategic decision that can have significant implications for the market and consumers. Examining oligopolies often involves understanding game theory, product differentiation, imperfect competition, and the prisoner's dilemma, concepts that highlight the interaction between firms in these markets.