As businesses operate in a market, they may find themselves in a duopoly with a collusive agreement. A duopoly refers to a market structure in which two firms control a significant portion of the market share. A collusive agreement is an agreement between firms within an industry to limit competition among themselves. In a duopoly with a collusive agreement, the two firms cooperate to maximize profits at the expense of competition and consumers.
In a duopoly with a collusive agreement, the firms involved can set prices, production levels, and other strategic decisions that benefit both parties. They can coordinate their actions to maintain market share, prevent new competitors from entering the market, and extract maximum profits from consumers.
This type of behavior can harm consumers by leading to higher prices, lower quality products, and reduced innovation. Consumers are left with little choice but to buy from the two firms in the duopoly, which can lead to reduced competition and higher prices.
The duopoly with a collusive agreement is often illegal, as it violates antitrust laws and can lead to an unfair market. To prevent such activities, governments establish regulatory bodies that monitor market activities and enforce anti-competitive practices.
One way to break a duopoly with a collusive agreement is to encourage new entrants into the market. A government can provide incentives for new firms to enter the market, such as reducing taxes or providing funding assistance. This can increase competition and lead to lower prices and better quality products for consumers.
In conclusion, a duopoly with a collusive agreement is a market structure in which two firms work together to control the market and extract maximum profits from consumers. It can lead to lower quality products, higher prices, and reduced competition. Governments must establish regulatory bodies to prevent antitrust activities and encourage new entrants into the market to promote competition and benefit consumers.