Collusion:

Collusion embodies Cartel arrangements. A cartel may be

defined as a formal organisation of the firms in a given industry or
group. The purpose of the Cartel is to transfer some decision
making to a central body or association. There are different Cartel
arrangements and, therefore, the degree of decision- making and
functions delegated to the central association will differ. We shall
discuss two typical Cartel arrangements. There is the centralised
Cartel which implies complete control over member firms and
there is the market-sharing Cartel in which case the functions
transferred to the central association are fewer. Let us now study
the principles involved in oligopoly model called the centralised
Cartel.

The concept of cartels comes in Oligopoly. Oligopoly is a

market structure, in which few sellers dominate the sales of a
product and the entry of new sellers is difficult or impossible. The
products can be differentiated or standardized. Automobiles,
cigarettes, and chewing gums are some examples of differentiated
products whose market structures are oligopolistic in nature.
Oligopolistic markets are characterized by high market
concentration. Cartels basically mean the formal agreement
between firms in an oligopolistic market to co-operate with regard
to agreed procedures on variables such as price and output. The
result will be diminished competition and co-operation over
objectives. For example, avoidance of new entry or joint profit
maximization. The best examples in this context are OPEC cartel
which is an international agreement among oil-producing
countries, which for over a decade succeeded in shooting up the
world oil prices, the International Bauxite Association (IBA)
quadrupled bauxite prices, and an international uranium cartel
pushed up the uranium prices. Mercurio Europeo held the price of
mercury close to monopoly levels from 1928-1970 and another
international cartel monopolized the iodine market from 1878-
1939. An international copper cartel operates in the present day
but never had a significant impact on copper prices. Similarly,
cartel attempted to drive the prices of Coffee, Tin, Coca-Cola etc.,
but could not succeed.

2.2 PRICE LEADERSHIP:

Price-leadership is another form of collusion. In this, one

firm sets the price and others follow it either because it is
beneficial to them or because they like to avoid uncertainty
regarding their competitors' reactions even if they have to depart
from profit-maximising output position. Price leadership is more
commonly found than cartels because it allows complete freedom
to the members as regards their output and selling activities. That