Light

Collusive Oligopoly

Definition

A collusive oligopoly refers to a market structure where a small number of firms collaborate to restrict competition and maximize their joint profits. These firms work together by setting prices, output levels, or engaging in other forms of coordination.

Analogy

Imagine a group of friends who all own lemonade stands in the same neighborhood. Instead of competing against each other, they secretly meet and agree to charge high prices for their lemonade, ensuring that they all make more money together. They collude to squeeze out any potential competition.

Related terms

Cartel: A cartel is a specific type of collusive oligopoly where firms formally establish an agreement to coordinate their actions, such as setting prices or dividing markets.

Price Leadership: Price leadership occurs when one firm in an oligopoly takes the lead in setting prices, and other firms follow suit.

Game Theory: Game theory is a mathematical tool used to analyze strategic interactions between individuals or groups, including situations like collusion in oligopolistic markets.