Asked by Chris Mangunza on May 11, 2024
Verified
The temptation for firms to collude in setting prices
A) is especially strong for perfect competitors because they have the most to gain from a restriction of output.
B) does not exist for monopolistic competitors because their products are identical.
C) is especially strong for undifferentiated oligopolists because the absence of product differentiation shuts off an important avenue of non-price competition.
D) is especially strong for vertically integrated oligopolists because they are producing beyond the point at which marginal revenue equals marginal cost.
Collude
When two or more firms work together to set prices, limit supply, or engage in other practices to restrict competition and manipulate market outcomes.
Perfect Competitors
In a perfectly competitive market, firms that have no market power and cannot set prices, with many buyers and sellers trading identical products.
Non-price Competition
A marketing strategy where a company tries to distinguish its product or service from competing products based on attributes other than price.
- Understand the specific situations conducive to the creation of collusion and cartels, along with their consequences for the marketplace.
- Scrutinize the competitive forces among oligopoly players and their impact on market developments.
Verified Answer
AA
Anabel AgrazMay 17, 2024
Final Answer :
C
Explanation :
Undifferentiated oligopolists have identical or nearly identical products, and therefore cannot differentiate themselves through non-price competition. This makes collusion in price-setting particularly attractive as a means of maintaining or increasing profits. Perfect competitors typically cannot collude because there are too many firms, while monopolistic competitors have some degree of product differentiation that allows for non-price competition. Vertical integration is not necessarily related to the temptation to collude in price-setting.
Learning Objectives
- Understand the specific situations conducive to the creation of collusion and cartels, along with their consequences for the marketplace.
- Scrutinize the competitive forces among oligopoly players and their impact on market developments.