Andreas Savva 6A
Competing firms within a market agree to collude . Discuss the likely impact of this collusive behavior on
the firms and consumers in this market
Collusion is the collective agreements, either formal or tacit, between firms that restrict competition. It
is controversial whether the impacts of a collusion on both firms and consumers will be positive or
negative as there is evidence that supports both stances.
On the one hand, it can be said that the impact of a collusion on firms and consumers will be positive.
One initial piece of evidence suggesting that the impact of collusion will be positive in regards to firms is
the higher prices they can charge and the higher profits they can gain. They will be able to charge a
higher price than if there was no collusion. Since the firms that collude agree to collectively fix the price
to a higher price, they can charge higher prices with little consequences. Therefore, firms will be able to
gain higher profits as a result of the increase in prices. This showcases the positive impact of collusion on
firms as they can charge higher prices and in turn gain higher profits as well as the possibility of
achieving supernormal profits. Furthermore, the less competitive nature of the market is another
positive impact for firms of collusive behavior. Markets will be less competitive as firms cooperate
through collusions. Due to this, firms may not need to spend as much and will not have to dedicate as
much money on branding and advertising. Hence, there would be a save accumulated on costs as well as
an increase on market share. This highlights the positive nature of a collusion’s impacts as firms get to
enjoy the benefits of a less competitive market. One final impact of collusive behavior is the stability
that benefits consumers. There will be greater stability in the market achieved by firms as a result of the
collusion and the cooperation involved. As a result, firms will be less likely to leave the market and
output will be assured. Due to this, consumers’ access to the goods offered by a market is guaranteed
and will not have to switch to other firms as it is unlikely that the current firms they buy goods from will
shut down. Hence, it is obvious that consumers benefit from collusions as the stability in the market will
lead to assured output. Ultimately, collusions have several positive impacts on both consumers and
firms, emphasizing their advantageous nature.
On the other hand, it can be argued that the impacts of collusive behavior are negative and thus, will
not benefit consumers nor firms. Firstly, the inability to expand sales is one of the negative aspects of
collusions that affect firms. Firms that are part of collusions cannot expand their sales as they have to
stick to the agreed quota for output. This will restrict the ability of the firm to increase its market share
and could would incentivize the firm to break the agreement and cheat. This illustrates how the impacts
of a collusion for firms as they cannot increase their sales due to the collusion’s quota. Secondly, the fact
that some firms may be disadvantaged as they may receive a lower output quota proves how the impact
of collusions is negative. Some businesses that are part of the collusive agreement may receive a lower
quota of output than they wish to produce and so sales will lower. Lower sales also mean that there will
be lower levels of revenue, forcing these firms to either produce at a loss or make funding cuts in
aspects of their business such as the workers’ wages, indicating the disadvantageous impacts of
collusions on firms. Thirdly, the impacts of collusions do not favour consumers as they will be forced to
pay higher prices. Since a collusive agreement implies that all firms fix their prices to a higher level and
restricting output, consumers will have to pay higher prices than if there was no collusion and there will
be lower output to purchase from. This indicates that a collusion will have a negative impact on
consumers as they will have to pay more for goods from collusive firms. Fourthly, the negative impacts
Competing firms within a market agree to collude . Discuss the likely impact of this collusive behavior on
the firms and consumers in this market
Collusion is the collective agreements, either formal or tacit, between firms that restrict competition. It
is controversial whether the impacts of a collusion on both firms and consumers will be positive or
negative as there is evidence that supports both stances.
On the one hand, it can be said that the impact of a collusion on firms and consumers will be positive.
One initial piece of evidence suggesting that the impact of collusion will be positive in regards to firms is
the higher prices they can charge and the higher profits they can gain. They will be able to charge a
higher price than if there was no collusion. Since the firms that collude agree to collectively fix the price
to a higher price, they can charge higher prices with little consequences. Therefore, firms will be able to
gain higher profits as a result of the increase in prices. This showcases the positive impact of collusion on
firms as they can charge higher prices and in turn gain higher profits as well as the possibility of
achieving supernormal profits. Furthermore, the less competitive nature of the market is another
positive impact for firms of collusive behavior. Markets will be less competitive as firms cooperate
through collusions. Due to this, firms may not need to spend as much and will not have to dedicate as
much money on branding and advertising. Hence, there would be a save accumulated on costs as well as
an increase on market share. This highlights the positive nature of a collusion’s impacts as firms get to
enjoy the benefits of a less competitive market. One final impact of collusive behavior is the stability
that benefits consumers. There will be greater stability in the market achieved by firms as a result of the
collusion and the cooperation involved. As a result, firms will be less likely to leave the market and
output will be assured. Due to this, consumers’ access to the goods offered by a market is guaranteed
and will not have to switch to other firms as it is unlikely that the current firms they buy goods from will
shut down. Hence, it is obvious that consumers benefit from collusions as the stability in the market will
lead to assured output. Ultimately, collusions have several positive impacts on both consumers and
firms, emphasizing their advantageous nature.
On the other hand, it can be argued that the impacts of collusive behavior are negative and thus, will
not benefit consumers nor firms. Firstly, the inability to expand sales is one of the negative aspects of
collusions that affect firms. Firms that are part of collusions cannot expand their sales as they have to
stick to the agreed quota for output. This will restrict the ability of the firm to increase its market share
and could would incentivize the firm to break the agreement and cheat. This illustrates how the impacts
of a collusion for firms as they cannot increase their sales due to the collusion’s quota. Secondly, the fact
that some firms may be disadvantaged as they may receive a lower output quota proves how the impact
of collusions is negative. Some businesses that are part of the collusive agreement may receive a lower
quota of output than they wish to produce and so sales will lower. Lower sales also mean that there will
be lower levels of revenue, forcing these firms to either produce at a loss or make funding cuts in
aspects of their business such as the workers’ wages, indicating the disadvantageous impacts of
collusions on firms. Thirdly, the impacts of collusions do not favour consumers as they will be forced to
pay higher prices. Since a collusive agreement implies that all firms fix their prices to a higher level and
restricting output, consumers will have to pay higher prices than if there was no collusion and there will
be lower output to purchase from. This indicates that a collusion will have a negative impact on
consumers as they will have to pay more for goods from collusive firms. Fourthly, the negative impacts
