Question

*Explain why oligopolistic firms want to collude instead of competing. Discuss the potential negative effects of collusion in the economy.

Answer 1

The oligopolistic market where there are few numbers of sellers always try to form collusion because to avoid a price war

Price war means different price setting by different firms which will create instability in the market and everey seller does make to manage a good profit

So they form collusion instead of competing.

Best example is OIL AND PETROLEUM EXPORTING COUNTRIES(OPEC)

Negative effects of collusion on the economy are-

1. They will charge the price according to their will and this will cause trouble for many lower and middle-class people in the society

2. They will behave as a monopoly who has full control on the market but trouble for the consumers

3. If there is any conflict among the colluded firms, then this will affect the whole collusion and ultimately bad for the economy.