Introduction to Collusion in Oligopoly Markets

What is a key characteristic of oligopoly markets that encourages collusion?

• High level of interdependency among firms

• Complete independence of firms

• Low market concentration

• A large number of small firms

Why might firms in an oligopoly choose to collude?

• To increase competition

• To maximize profits

• To reduce product quality

• To decrease market share

Which of the following is a form of collusion?

• Price leadership

• Monopolistic competition

• Perfect competition

• Market fragmentation

What is the outcome of a price war in an oligopoly market?

• Stable market conditions

• Higher market prices

• Zero economic profit

• Increased economic profit

How can firms in an oligopoly maximize industry profits?

• By artificially setting higher prices

• By increasing production costs

• By reducing prices

• By increasing the number of firms

What strategy might firms use to prevent new entrants in the market?

• Expanding market share

• Predatory pricing

• Increasing product variety

• Lowering production costs

Why might firms want to create barriers to entry?

• To diversify products

• To encourage innovation

• To maintain market stability

• To increase competition