Question

1. The article is headed Collusion: Exploitation or benefit? Discuss

Whether there is sufficient evidence provided to support that statement

Answer 1

Collusion is somewhat gaining from other people/ group or taking advantage on people therefore I think it will fall on exploitation. In collusion, it involves people or companies that are rival who are working together in order to have gain benefits from each other. Yes you will gain some benefit but its more on like exploiting from each other because basically you are only cooperating with other people because you are deceiving/ cheating to gain something.

Explanation:

I

Collusion occurs when rival firms agree to work together - e.g. setting higher prices in order to make greater profits. Collusion is a way for firms to make higher profits at the expense of consumers and reduces the competitiveness of the market.

Collusion usually involves some form of agreement to seek higher prices. This may involve:

• Agreeing to increase prices faced by consumers.
• Deals between suppliers and retailers. For example, vertical price-fixing e.g. retail price maintenance. (For example, Fixed Book Price (FBP) set the price a book is sold to the public.
• Monopsony pricing - where retailers collude to reduce the amount paid to suppliers. For example, a retailer with great buying power (Walmart, Amazon) can offer very small profit margins to suppliers as they have little alternative.
• Collusion between existing firms in an industry to exclude new firms from deals to prevent the market from becoming more competitive.
• Sticking to output quotas and higher prices.
• Collusive tendering. For example, 'cover prices' for competitive tendering in bidding for public construction contracts. This is when a rival firm agrees to set artificially high price to allow the firm of choice to win with a relatively high contract offer.

Problems of collusion

Collusion is seen as bad for consumers and economic welfare, and therefore collusion is mostly regulated by governments. Collusion can lead to:

• High prices for consumers. This leads to a decline in consumer surplus and allocative inefficiency (Price pushed up above marginal cost)
• New firms can be discouraged from entering the market by types of collusion which act as a barrier to entry.
• Easy profits from collusion can make firms lazy and avoid innovation and efforts to increase productivity.
• Industry gets the disadvantages of monopoly (higher price) but none of the advantages (e.g. economies of scale