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COPY: Economics: Tacit Collusion and Cartels

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COPY: Economics: Tacit Collusion and Cartels

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Questions and Answers

Which of the following best describes tacit collusion?

It requires firms to meet regularly to align prices.

It occurs without explicit communication or agreements. (correct)

It is highly detectable and easily proven.

It relies on formal contracts between firms.

What is a common method to detect tacit collusion among firms?

Monitoring correlated price movements and patterns. (correct)

Reviewing customer feedback on price changes.

Observing sudden price drops during peak seasons.

Analyzing production cost variations over time.

Which scenario is likely to lead to a finite time horizon in tacit collusion?

Firms know when competition will cease. (correct)

Firms are unaware of market exit opportunities.

Firms operate in a constantly changing market.

Firms agree to indefinite cooperation.

Why might correlated price movements among firms not be definitive proof of collusion?

Costs or demand can evolve similarly for independent reasons. Signup and view all the answers

What is a primary goal of corporate leniency programmes?

To provide reduced sentences for cooperating firms Signup and view all the answers

How do whistleblowing programmes contribute to law enforcement?

By shielding informants from criminal sanctions Signup and view all the answers

What effect do competition authorities aim to achieve through law enforcement against cartels?

To prevent the formation of new cartels Signup and view all the answers

What is one way that tacit collusion impacts consumers?

It can result in higher prices. Signup and view all the answers

What is a distinguishing feature of tacit collusion compared to explicit collusion?

It does not involve direct communication or agreements. Signup and view all the answers

What does the stability of cartels depend on?

The ability of firms to monitor each other's actions Signup and view all the answers

Which of the following best describes the primary risk of forming a cartel?

Government scrutiny and potential legal action Signup and view all the answers

What is a possible externality of collusion on the market?

Reduction in consumer choices Signup and view all the answers

What is a primary reason for the instability of cartels?

Members may revert to competitive behavior. Signup and view all the answers

What is a challenge when verifying collusion among firms?

Gathering data on firm’s costs and behaviors. Signup and view all the answers

Which of the following statements reflects the 'indistinguishability theorem' in the context of collusion?

Firms can misreport to appear competitive. Signup and view all the answers

Which model is used to determine the behavior of firms in potential collusion scenarios?

Competitive versus collusive model Signup and view all the answers

What problem often complicates the interpretation of results when detecting collusion?

Extreme sensitivity of estimates to model specifications. Signup and view all the answers