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Technology can make it easier for oligopolies to collude because innovations can lower costs, and increase supply. It can give the business a higher profit at the same price- without spending more. What makes collusion more likely in an oligopoly- is price collusion between businesses. It will break down because there is an incentive to do a price-fixing deal (Kincaid, 2002). Lowering price and increasing output will increase the business total profits. Businesses in an oligopoly might collude to set a price or output level for a market to maximize the industry profits. Colluding firms can act as if they are monopolies and oligopolies pursuing their individual interest can make a larger amount than a monopolist; and charge a lower price (Kincaid, 2002). When oligopoly firms decide what quantity to produce & what price to charge, they like to act as if they are a monopoly. When oligopolys work together, they can hold down industry output, charge a higher price, and divide up the profit between themselves (Kincaid, 2002). For oligopolies, there are different outcomes that can come about: stable prices, price wars, or; collusion- leading to higher prices.
There are some barriers to entering an oligopoly (obstacles that make it difficult to enter a market) because a new firm cannot enter the market if an existing firm is making positive profits (Kincaid, 2002). The more firms there are, the lower the possibility of getting together and reaching a sustainable agreement is. Detecting collusion can be done by talking with an ex-employee, or complaints of customers (Kincaid, 2002). This kind of evidence can be attractive, but no one should be suspicious of complaints done by a rival firm. Oligopolies as well as monopolies both have their own in-efficiencies and both achieve efficiency as well because they produce until their marginal cost equals the price (Kincaid, 2002). Collusion occurs when oligopolies make joint decisions and act as if they are a single firm.
J. Kincaid. International Social Science Journal, 2001. Wiley Online Library. Economic Policy Making: Advantages and Disadvantages of the Federal Model. Published December 16, 2002. Retrieved from: www.library.wiley.com
Discussion Two Reply
Oligopolistic markets are the most innovative and coordinated market structures across the economies of the world. The increased level of competition has resulted in the development of numerous market structures to achieve a substantial profit base and a more extensive consumer base than other players in the market (Lamantia & Radi, 2018). The critical characteristic of oligopolistic markets is a strong sense of cooperation exercised by the small firms encompassed in the market structures. It leads to the development of a robust collaborative framework that focuses on establishing mutual benefits among rivalries in the economy (Lamantia & Radi, 2018). The incorporation of technology among oligopolies has grown exponentially over the years to increase the productivity levels of the corporations. However, a productivity paradox has been imminent among the oligopolies in the economy. The adoption of technological advancements among oligopolies facilitates growth and reduction of operational costs (Lamantia & Radi, 2018). Technology shall play a vital role in the streamlining of operations and enhancement of product differentiation among the rival companies.
The primary focus of the oligopolies is the increment of the returns of scale and selling above the regular market price to increase its profitability ratio (Zhang, 2020). Through technology incorporation, the oligopolies shall be able to reduce its output costs; this is because the integration of information technology and other forms of technology helps in streamlining and reducing costs of production, such as the payment of remuneration of the human workforce (Zhang, 2020). Through technology, oligopolies shall have lowered output costs, which shall lead to significant profit margins for all companies in their market structure. Hence, collusion is inevitable through the adoption of technology, as all rival companies shall have innovative technology and increased returns of scale through reduced production costs.
Lamantia, F., & Radi, D. (2018). Evolutionary Technology Adoption in an Oligopoly Market with Forward-Looking Firms. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3114095 (Links to an external site.)
Zhang, Y. (2020). When should firms choose a risky new technology? An oligopolistic analysis. Economic Modelling, 91, 687-693. https://doi.org/10.1016/j.econmod.2019.12.011
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