Question

George Stigler, a Nobel laureate in economics, suggested that one reason why oligopolies have prices higher than competitive industries is that tacit (or silent) coordination concerning output and price is much easier when there are only a few competing firms. In addition, it is easier to detect cheating on some agreed-upon price or output level. Evaluate this argument.

Answer 1

The argument is right.

Oligopolies charge higher than normal prices in the market because of greater market control and their ability to voluntary agree to charge a higher price and make high profits collectively.

Any change in price by one seller can be easily detected as all firms are mutually interrelated and any alteration by one firm affects all other firms.