Question

Suppose there are four dominant manufacturers of toilet tissue. The largest of these manufacturers announces that it will raise its prices by 15 percent due to higher paper costs. Within three days, the other three dominant toilet tissue manufacturers announce similar price hikes. The decision among the four companies to raise prices would O A. not be explicit collusion unless there was clear evidence of an agreement among the manufacturers. O B. be evidence of explicit collusion since they all acted similarly. O C. not be explicit collusion unless there was a written agreement among the manufacturers. O D . be evidence of explicit collusion because they are all large companies.

Answer 1

Explicit collusion between firms happen when they engage with each other in formal manner to control market and raise the market price.

This formal agreement can be written or can be undocumented as well.

However, when firms do not collude in formal manner but in tacit manner such that one firm acts as price leader and raise the price and other firm follows suit.

This collusion to raise price is termed as tacit collusion.

In the given case, one firm has raised the price and other firms have followed suit.

So, this is an example of the tacit collusion.

Thus,

It can be stated that the decision among the four companies to raise the prices would not be explicit collusion unless there was a clear evidence of an agreement among the manufacturers.

Hence, the correct answer is the option (A)