Question

'When collusion among firms breaks down in an industry, concentration is expected to rise.' Is this statement true? Justify your answer with reference to economic theory and any relevant empirical evidence.

Answer 1

Ans. In a market where collusion is available, the total market demand is combination of the various producing members. Under non colluding environment economic situations, each firm faces an individual demand. . Successful collusion is more probable if the quantity of firms is little or in the event that one firm is predominant. Collusion turns out to be progressively troublesome as the quantity of firms increments or if the couple of firms have comparable pieces of the pie. When the organizations have comparable share of the overall industry, the serious powers will in general dominate the advantages of collusion. . Therefore the statement that, when collusion among firms breaks down in an industry, concentration is expected to rise is not true. The main reason to enter into the formal collusion is to increase overall profitability of the market, and rising profits attract competition. OPEC members is a empirical evidence of when collusion have failed.