Submitted by Mikky
A little of micro economics today. We know all businesses individually strive for monopolistic power. Yet many fail to gain that sort of power. Though there were innumerable cases of monopoly, they are only descending due to the rising number of players across segments also by the free markets.
The presumption of any entrepreneur to gain complete dominance over the market is impractical, thus they go for collusion ( If company A fixes the price of a product at 10$ and B fixes at 15$ there’s a tendency of both companies colluding and bringing both their prices to anywhere between 10-15 dollars). Collusion and cartelism are failures from inception as the prisoner’s dilemma constricts the movement of prices thus limiting the fluidity of demand and supply.
Competition is the spark for innovation. For this, collusion is a harbinger. There’s always one policy in a cut throat business – you invent or you perish. When there is innovation there’s no collusion. A free market so lets the evolution of another form of collusion: the two producers of a homogeneous product when they do not collude, they cross license
Why does collusion exist ? Producers are motivated by profits. The existence of prisoner’s dilemma is just, yet cross licensing defeats the dilemma.
Back to economics, we know that the economy is never in equilibrium. It only moves towards equilibrium. The moving- is the collusion arena. Its bound to fail because there’s factually no point of equilibrium
Well it isn’t totally about the producer, what about the consumer? Fairly so, collusions take place for the product to sell better. So that a total knock-out competition is avoided which makes more number of units get sold for a mutually beneficial price.
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©The Idea Bucket, 2013. Submitted my Mikky