Terms of Strategy
1. Tacit Collusion 2. Explicit Collusion 3. Collusive Price Setting 4. Predatory Pricing 5. Mutual forbearance 6. Game Theory 7. Market Commonality 8. Antitrust Policy 9. Operational Synergy 10. Financial Synergy
------------------------------------------------- Tacit Collusion:
Definition:
“Circumstance where two companies agree upon a certain strategy without putting it in writing or spelling out the strategy explicitly”
Tacit Collusion is seemingly independent; Two firms agree to play a certain strategy without explicitly saying so. Oligopolists usually try not to engage in price cutting, excessive advertising or other forms of competition. Thus, there may be unwritten rules of collusive behaviour such as price leadership (tacit collusion). A price leader will then emerge and sets the general industry price, with other firms following suit. Also termed implicit collusion, the distinguishing feature of tacit collusion is the lack of any explicit agreement.
Examples
* Market division and price-fixing among manufacturers of heavy electrical equipment in the 1960s, including General Electric. * An attempt by Major League Baseball owners to restrict players' salaries in the mid-1980s. * The sharing of potential contract terms by NBA free agents in an effort to help a targeted franchise circumvent the salary cap
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Explicit Collusion: Also termed overt collusion, this occurs when two or more firms in the same industry formally agree to control the market.
Examples:
* De Beers is the example of explicit collusion.
* The most recent example of a cartel was between Unilever and Procter & Gamble who were found guilty of price fixing washing powder in 8 European countries. The case that was conducted by the European Commission after a tip off from Germany Company, Henkel. The resulting penalty was a 315 million euros fine, split between
------------------------------------------------- Tacit Collusion:
Definition:
“Circumstance where two companies agree upon a certain strategy without putting it in writing or spelling out the strategy explicitly”
Tacit Collusion is seemingly independent; Two firms agree to play a certain strategy without explicitly saying so. Oligopolists usually try not to engage in price cutting, excessive advertising or other forms of competition. Thus, there may be unwritten rules of collusive behaviour such as price leadership (tacit collusion). A price leader will then emerge and sets the general industry price, with other firms following suit. Also termed implicit collusion, the distinguishing feature of tacit collusion is the lack of any explicit agreement.
Examples
* Market division and price-fixing among manufacturers of heavy electrical equipment in the 1960s, including General Electric. * An attempt by Major League Baseball owners to restrict players' salaries in the mid-1980s. * The sharing of potential contract terms by NBA free agents in an effort to help a targeted franchise circumvent the salary cap
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Explicit Collusion: Also termed overt collusion, this occurs when two or more firms in the same industry formally agree to control the market.
Examples:
* De Beers is the example of explicit collusion.
* The most recent example of a cartel was between Unilever and Procter & Gamble who were found guilty of price fixing washing powder in 8 European countries. The case that was conducted by the European Commission after a tip off from Germany Company, Henkel. The resulting penalty was a 315 million euros fine, split between