Question

Suppose you were asked to develop a movie plot about an executive who is colluding with others to set higher prices. What will you include in the plot to make the story realistic (what's critical to the collusion's success)?

Answer 1

Solution

The word "collusion" means secret cooperation in order to decive other.So, it also illegal.Here the story is show how an executive is colluding with others to set higher prices.

I will illustrate an imaginary story.

There is a top executive working for ABC Company.There is a competitor for this company - Company DEF whoc wants to grab the market share of ABC and become the market leader..

The CEOof Company DEFchooses to bribe the purchase head of the company ABC to execute the plan.Under the plan,the purchase manager ensures that the company ABC purchases it's raw materials from it's suppliers at a higher price.For this to happen,either the purchase manager can convince his management that inspite of the higher prices the quality of the raw material is high and that the prices are normal and so...The company DEF can also bribe / take control of the suppliers for company ABC and ensure that they charge higher prices.

So,in this process,the purchase price of raw materials for Company ABC increases due to which it has to increase the selling price of its goods.On the other hand company DEF keeps it's prices constant .So the it manages to grab the market share from Company ABC and becomes a market leader in the segment.

This is possible only in the short-term because there is review and feedbanck mechanism in every company.