Collusive Agreement In Oligopoly
The sustainability of the equation will depend primarily on two factors: the credibility of the penalty threat and the discount factor. The former is easily understood as a credible threat, which guarantees the absence of deviations, and the latter is responsible for assessing each party`s assessment of the benefits obtained from the results of a collusive strategy, in relation to potential gains, to modify its strategy. In 2015, Apple and Google were investigated over an agreement between the two companies, in which they agreed not to hire employees of the other company. It was an attempt to avoid wage spirals, because workers move between companies. The companies agreed to reach a transaction rather than bring it to justice. For example, game theory may explain why oligopolies have difficulty maintaining collusive agreements to generate monopoly gains. While together, companies would be better off if they worked together, each company has a strong incentive to defraud and under-coerce competitors in order to increase their market share. Because the incentive to default is strong, companies cannot even enter into a collusive agreement if they do not perceive that there is a way to effectively punish defectors. An agreement is a formal collusive agreement between companies with the aim of increasing profits. A true duopoly is a specific type of oligopoly in which there are only two producers in a market. There are two major duopoly models: Cournot Duopoly and Bertrand Duopol.
Collusion is a deceptive arrangement or secret cooperation between two or more parties to limit open competition by deceiving, deceiving or deceiving others of their right. Collusion is not always considered illegal. It can be used to achieve goals that are prohibited by law; z.B. by fraud or the taking of an unfair advantage in the market. It is an agreement between companies or individuals to divide a market, set prices, limit production or limit opportunities.  It may involve “unions, wage fixings, bribes or a misrepresentation of the independence of relations between the merging parties.”  From a legal point of view, all acts committed by cartels are considered unconfessed.  Collusion is a non-competitive, secret and sometimes illegal agreement between competitors, which attempts to disrupt the balance of the market. The act of collusion involves individuals or companies that would generally compete against each other but conspire to work together to gain an unfair advantage in the marketplace. The sticking parties may jointly decide whether to influence the supply of a product in the market or to accept a certain price level that helps partners maximize their profits at the expense of other competitors. It`s common in duopoly. Companies in an oligopoly can increase their profits through collusion, but collusive agreements are inherently unstable. Legislation in different countries may envisage different scenarios and sanctions for such agreements, but the main idea is clear: business behaviour should not affect the proper functioning of market forces.
Game theory provides a framework for understanding how companies behave in an oligopoly. Several factors can create problems within a collusive agreement between suppliers: -Multimarket contact: if companies compete in several markets, the collusive agreement will be more stable.