Imagine an oligopolistic industry whose companies have identical demand and cost conditions. If companies decide to accept agreements, then together they will want to produce the amount of production that would be produced by: a. A monopolistic competitor. b. A pure competitor. c. A pure monopolist. d. None of the above. The Organization of the Petroleum Exporting Countries (OPEC) is the largest cartel in the world. It is a group of 14 oil-producing countries whose task is to coordinate and unify the oil policies of their member countries and to ensure the stabilization of oil markets. OPEC`s activities are legal because U.S. trade laws protect them.
Explicit agreements occur when a group of companies enters into a formal agreement on collusive business practices. However, since collusive practices are generally illegal, companies are likely to avoid creating documentation for such an agreement. A contract detailing the terms of the collusion may also be difficult to enforce in court for the same reason. Instead, a formal consultation agreement can be reached orally and in person. In particular, the Sherman Act prohibits companies from entering into secret agreements that harm other parties and sets the maximum penalty for corporate collusion at $100 million. Economists have long understood the desire of companies to avoid competition so that they can instead raise the prices they charge and make higher profits. Adam Smith wrote in Wealth of Nations in 1776: “People of the same trade rarely meet, even for happiness and distraction, but the conversation ends in a conspiracy against the public or an invention to raise prices.” In the midst of controversy in the mid-2000s, concerns about retaliation and potential negative repercussions on U.S. companies led to the U.S. Congress` attempt to punish OPEC as a blocked illegal cartel.
Despite the fact that OPEC is considered a cartel by most, OPEC members have claimed that it is not a cartel at all, but an international organization with a legal, permanent and necessary mission. There is no single model that describes how an oligopolistic market works. [8] The diversity and complexity of the models is that two to 10 companies can compete based on price, quantity, technological innovation, marketing and reputation. However, there are a number of simplified models that attempt to describe market behaviour taking into account certain circumstances. Some of the best-known models are the dominant business model, the Cournot-Nash model, the Bertrand model, and the twisted demand model. Many industries have been described as oligopolistic, including civil aviation,[22] agricultural pesticides,[22] electricity,[23][24] and platinum group metal mining. [25] In most countries, the telecommunications sector is characterised by an oligopolistic market structure. [24] [26] Rail freight markets in the European Union are oligopolistic. [27] In the United States, industries that have identified as oligopolistic include food processing[28], funeral homes[29], sugar refining[30], beer[31] and pulp and paper. [32] An oligopoly (ολιγοπώλιο) (Greek: ὀλίγοι πωλητές “few authorities”) is a form of market in which a market or industry is dominated by a small group of large sellers (oligopolists). Oligopolies can result from various forms of collusion that reduce competition in the market, which usually results in higher prices for consumers. Oligopolies have their own market structure.
[1] The Cournot-Nash model is the simplest oligopoly model. The model assumes that there are two “equally positioned companies”; Firms compete on the basis of quantity rather than price, and each firm takes an “exit from the decision assuming that the behaviour of the other firm is fixed”. [9] The market demand curve is assumed to be linear and marginal costs constant. To find the Cournot-Nash balance, you determine how each company reacts to a change in the production of the other company. The path to equilibrium is a series of actions and reactions. The trend continues until a point is reached where neither company “wants to change what it does, because it believes the other company will react to any change.” [10] Equilibrium is the intersection of the reaction functions of the two societies. The reaction function shows how one company reacts to the other company`s choice of quantity. [11] For example, suppose the firm`s demand function is 1 P = (M − Q2) − Q1, where Q2 is the quantity produced by the other company and Q1 is the quantity produced by the firm 1 [12] and M = 60 is the market. .
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