Tacit Agreement Economics

If price management is adopted to facilitate tacit (or unspoken) cartels, the price leader will generally tend to set a price high enough for the least profitable company to achieve a higher return in the market than the competition. This information has been very useful to me in carrying out my economic mission and I am truly grateful. Keywords: agreement, pricing, agreement, folktheorem, tacit agreement This chapter examines the economic literature on tacit collusion in oligopolistic markets and takes steps to clarify the link between the analysis of unspoken cartels by economists and those of legal literature. The chapter provides an example to motivate the idea that collusive profits can be achieved through tacit coordination in an environment where employees can maximize and distribute their shared profits. In addition, barriers to more competitive than average profits in less simple environments are examined without explicit communication. Unspoken agreements occur when companies choose measures that may minimize another company`s response. B, for example, avoid the possibility of reducing the possibility, as this would encourage the opposition to take retaliatory measures. In other words, two companies agree to play a certain strategy without explicitly saying so. Oligopolists generally try not to participate in lower prices, excessive advertising or other forms of competition. Thus, there may be unwritten rules of collusive behavior, such as price leadership (tacit agreement). There will then be a price leader who will set the overall price of the industry, while other companies will follow suit. Look, for example. B the case of British Salt Limited and New Cheshire Salt Works Limited.

[1] In general, if payments for collusion (normal, normal) are larger than payments for fraud (aggressive, aggressive), both companies will (tacitly) want to agree. Although this collusive layout is not a balance in the one-shot game above, the repetition of the game allows companies to maintain agreements over long periods of time. This can be achieved, for example, if each company`s strategy is to do normal advertising as long as its rival does, and to pursue aggressive advertising forever as soon as its rival has launched an aggressive advertising campaign at least once (see: fierce trigger) (this threat is credible, because the symmetrical use of aggressive advertising is a nash balance of every step of the game). Each company must then weigh the short-term profit of $30 of “fraud” against the long-term loss of $35 in all future periods, which is part of its penalty.