Question

One possible outcome of the firms joining together and behaving as monopolist is called as

• A. Explicit collusion
• B. Horizontal Integration
• C. Mutual agreement
• D. Price leadership

Hint:

Collusion Types:
- Explicit: Formal, written, or spoken agreements (e.g., cartels).
- Tacit: Informal, unspoken understanding (e.g., price leadership).

Answer 1

The Correct Option is A

Step 1: Understanding the Concept:
Oligopolistic markets contain a small number of large firms.
These firms can compete aggressively or coordinate to maximize joint profits.
Detailed Explanation:
When competing firms coordinate their actions to raise prices and restrict output, they are colluding.
This allows them to behave collectively like a monopoly.
- Explicit Collusion: This occurs when firms make a formal, cooperative agreement to fix prices, allocate market share, or restrict production.
A prominent example of explicit collusion is a cartel.
Thus, this matches the question.
Let us review the alternate options:
- Horizontal Integration: This involves merging competing firms at the same production stage, creating a single legal entity rather than separate firms colluding.
- Mutual Agreement: This is a general legal term, not a specific market structure descriptor.
- Price Leadership: This occurs when one dominant firm sets the price, and other smaller firms follow, which is a form of tacit collusion.

Step 2: Final Answer:
Firms formally coordinating to act as a monopolist is called explicit collusion.