EC260 Lecture Notes - Lecture 8: Bid Rigging, Monopoly Price, Tacit Collusion
Document Summary
Products that are either standardized or differentiated. Non price competition in a form of advertising or product differentiation. Foster cooperation among rival firms to increase profits and decrease uncertainty. They do this to raise barriers for potential entries. Cartel is an open and formal collusive agreement. Competition act prohibits certain criminal offences (price fixing, bid rigging) Established among rival firms in order to set uniform prices. Attempt to set price = to monopoly price. Monopoly price determined by estimated mc of entire cartel. As long as input prices don"t increase cartel. Maximize profit when cartel members set total mc = If not everyone has the same mc then allocate profits from higher cost members to lower cost: tough to do as some people have more influence than others. There is always a threat of someone leaving and cheating to increase their own profits. Goal is for one firm to have more power than another in the industry.
