Manag., December-2019 – Q20
- Option : D
- Explanation : Common and more direct competition reducing cooperative strategy is collusion. Collusive strategies often are illegal. There are two types of collusive strategies—explicit
collusion and tacit collusion. Explicit
collusion means that two or more competing
firms negotiate directly to jointly agree about
the amount to produce as well as the prices
that will be charged for what is produced.
Explicit collusion strategies are illegal in the
The United States and most developed economies
(except in regulated industries). Therefore,
firms that use such strategies may face
litigation and may be found guilty of
noncompetitive actions.
Tacit collusion exists when several firms in an industry indirectly coordinate their production and pricing decisions by observing each other’s competitive actions and responses. Firms that engage in tacit collusion recognize that they are interdependent and that they're competitive actions and responses significantly affect competitors’ behaviors toward them. Tacit collusion results in less than fully competitive production levels and prices that are higher then they might otherwise be. Firms engaging in tacit collusion do not directly negotiate output and pricing decisions, as they do in explicit collusion. This type of competition reducing the strategy is more com m on in industries that are highly concentrated, such as breakfast cereals and airlines.
A mutual forbearance is a form of tacit collusion in which competition is reduced because firms fear responses to competitive attacks from competitors with whom they compete in multiple markets.
