What Is An Agreement Among Firms To Divide The Market

Economics and management scientists have tried to identify the factors that explain why some companies are more or less likely to be involved in collusion. Some have noted the role of the regulatory environment[10] and the existence of leniency programs. [11] Others, based on the literature on criminology and reprehensible behaviour, suggested that companies conduct a cost-benefit analysis to assess their involvement in collusion. [12] Secret cartels are characterized as tacit collusion and are considered legal. Adam Smith, in the wealth of nations, explains that it is easier to meet to serve the common interests of stakeholders, such as maintaining low wages, while it is difficult for workers to coordinate to protect their own interests because of their large numbers. As a result, entrepreneurs have a greater advantage over the working class. However, according to Adam Smith, the public rarely hears about coordination and cooperation between business owners, as it takes place in informal environments. [5] According to neoclassical pricing theory and game theory, the independence of suppliers forces prices to a minimum, increases efficiency and reduces each company`s ability to determine prices. [6] However, if all companies agree on price increases, revenue losses will be minimized, as consumers will not have alternatives at lower prices and they will have to choose what is available. This benefits companies that accumulate because they generate more revenue at the expense of efficiency for society.

[7] Collusion is a fraudulent arrangement or secret cooperation between two or more parties in order to limit open competition by defrauding, inducing or defrauding 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. [1] It may involve "unions, wage fixings, bribes or a misrepresentation of the independence of relations between the merging parties." [2] From a legal point of view, all acts committed by cartels are considered unconfessed. [3] A variant of this traditional theory is the theory of folded demand. Businesses are faced with a drop in demand if, in the event of a price drop in a company, they are expected to follow this example in order to maintain their turnover. If a company increases its price, its rivals probably won`t follow, as they would lose the revenue gains they would otherwise get if they kept prices at the previous level.

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