Chapter 66, Problem 1CYU

a)

To determine

Whether the practice supports the conclusion that there is tacit collusion in the industry when the price in the industry hasn't changed for some time, and every company in it charges the same price.

Explanation of Solution

Because companies set their prices in accordance with the published proposed price of the biggest firm in the industry, therefore there is a chance of tacit collusion. In this case, there is the possibility of tacit collusion because when the price is selected by the largest firm in the industry, then there is no appropriate coordination between all firms in the industry which cause a collision.

Economics Concept Introduction

Introduction: Competitors who collude covertly to coordinate their conduct by agreeing to share information but not explicitly exchanging it are said to be acting in collusion.

b)

To determine

Whether the practice supports the conclusion that there is a tacit collusion in the industry when over time, considerable variation occurs in the market shares of the firms in the industry.

Explanation of Solution

There is not any possibility of tacit collusion because when there is an availability of considerable variations in the market share then it is a sign of any kind of competition between different firms that belong to the industry. This case does not provide any evidence of collusion as market share differences or variations do not impact the coordination of firms in the industry.

Economics Concept Introduction

Introduction: Competitors who collude covertly to coordinate their conduct by agreeing to share information but not explicitly exchanging it are said to be acting in collusion.

c)

To determine

Whether the practice supports the conclusion that there is a tacit collusion in the industry when companies in the sector incorporate pointless features into their products, making it difficult for customers to transition from one brand to another.

Explanation of Solution

There is no possibility of tacit collusion in this case because business firms in the sector make it difficult for customers to switch products. As incorporating features into products and services will encourage customers to buy from any firm in the same industry then there will be no collusion.

Economics Concept Introduction

Introduction: Competitors who collude covertly to coordinate their conduct by agreeing to share information but not explicitly exchanging it are said to be acting in collusion.

d)

To determine

Whether the practice supports the conclusion that there is a tacit collusion in the industry when firms meet to discuss their annual sales forecasts yearly.

Explanation of Solution

Yes, there would be a possibility of tacit collusion because firms can collude or disagree when they meet to decide their annual sales forecast each year. This is evidence of tacit collusion because firms discuss matters together and they plan their sales together, which can generate collusion among firms in the industry.

Economics Concept Introduction

Introduction: Competitors who collude covertly to coordinate their conduct by agreeing to share information but not explicitly exchanging it are said to be acting in collusion.

e)

To determine

Whether the practice supports the conclusion that there is a tacit collusion in the industry when firms frequently raise their prices at the same time.

Explanation of Solution

Yes, in this case, there would be tacit collusion because the companies must collaborate if they are all raising their prices at the same time and not doing so in order to grow their market share. Therefore, if firms are not collaborating while deciding prices then there would be tacit collusion in the industry.

Economics Concept Introduction

Introduction: Competitors who collude covertly to coordinate their conduct by agreeing to share information but not explicitly exchanging it are said to be acting in collusion.