3. Which of the following factors are likely to support the conclusion that there is tacit collusion in this industry? Which of these factors are not likely to support that conclusion? Explain your answers.
There has been considerable variation in the market shares of the firms in the industry over time.
This is not likely to be interpreted as evidence of tacit collusion. Considerable variation in market shares indicates that firms have been competing to capture one anothers’ business.
Firms in the industry build into their products unnecessary features that make it hard for consumers to switch from one company’s products to another company’s products.
This is not likely to be interpreted as evidence of tacit collusion. These features make it more unlikely that consumers will switch products in response to lower prices. So this is a way for firms to avoid any temptation to gain market share by lowering price. This is a form of product differentiation used to avoid direct competition.
Firms meet yearly to discuss their annual sales forecasts.
This is likely to be interpreted as evidence of tacit collusion. In the guise of discussing sales targets, firms can create a cartel by designating quantities to be produced by each firm.
Firms tend to adjust their prices upward at the same times.
This is likely to be interpreted as evidence of tacit collusion. By raising prices together, each firm in the industry is refusing to undercut its rivals by leaving its price unchanged or lowering it. Because it could gain market share by doing so, refusing to do it is evidence of tacit collusion.