Question

*Industrial economics* Select a firm or industry (AMAZON) and use the theory of collusion to carry out an analysis of the strategic behaviour of that firm. As part of the answer, consider the strengths and weaknesses of the theory used. ALSO, Discuss how the firms in the industry collude, or not. *Word count 650* *Include references and citations.*

Answer 1

The theory of collusion states that the conduct of firms in order to increase the prices above the competitive level for their gains and defying the competition law is called collusion. This theory uncovers the act of the rival companies which are not stated explicitly as in curtails.

For understanding this theory let us consider the telecom operators in India. The major telecoms players in India are Reliance Jio, Vodafone, Airtel, Idea, and Docomo. Before Jio entered into the telecome sector of India all the other telecome operators were involved in some sort of collusion to improve their financials. When the firm were competing truely for the subscriber bases the APRU (average revenue per customer) started to decline and the profit level came to a very thin margin level. To improve the condition without making any cartel the firms started to build their rental plan more or less similar to each other. The level of true competition started to erode and it looked like all the firms has decided not to compete with each other and what ever subscriber based they have they should try to get more and more APRU from them. This phenomenon can be seen under the theory of collusion.

The strength of this theory is that it uncovers the unstated act of the companies which is not in favour of customers in general and the customer's interest is taken for a toss. While the only weakness with this theory is the lack of evidence. Such collusion behaviour is very difficult to be proven because firms do not communciate officially with each other and there is no record of consensus among the firms but the understanding not to compete remains unstated and undocumented. This makes the task to prove the collusion happening very difficult and weakens this theory and its argument.