module 66 Oligopoly in Practice 657
Section 12 Market Structures: Imperfect Competition
Module 66 AP ReviewCheck Your Understanding
- For each of the following industry practices, explain whether
the practice supports the conclusion that there is tacit collusion
in this industry.
a. For many years the price in the industry has changed
infrequently, and all the firms in the industry charge the
same price. The largest firm publishes a catalog containing a
“suggested” retail price. Changes in price coincide with
changes in the catalog.
b. There has been considerable variation in the market
shares of the firms in the industry over time.
c. 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’s.
d. Firms meet yearly to discuss their annual sales forecasts.
e. Firms tend to adjust their prices upward at the same
times.Solutions appear at the back of the book.
Tackle the Test: Multiple-Choice Questions
- Having which of the following makes it easier for oligopolies to
coordinate on raising prices?
a. a large number of firms
b. differentiated products
c. buyers with bargaining power
d. identical perceptions of fairness
e. complex pricing schemes - Which of the following led to the passage of the first antitrust
laws?
I. growth of the railroad industry
II. the emergence of the Standard Oil Company
III. increased competition in agricultural industries
a. I only
b. II only
c. III only
d. I and II only
e. I, II, and III
3. When was the first federal legislation against cartels passed?
a. 1776
b. 1800
c. 1890
d. 1900
e. 1980
4. Which of the following industries has been prosecuted for
creating an illegal cartel?
a. the lysine industry
b. the art auction house industry
c. the U.S. electrical equipment industry
d. the bulk vitamin industry
e. all of the above
5. Oligopolists engage in tacit collusion in order to
a. raise prices.
b. increase output.
c. share profits.
d. increase market share.
e. all of the above.
Tackle the Test: Free-Response Questions
- Like other firms, universities face temptations to collude in
order to limit the effects of competition and avoid price wars.
(In fact, the U.S. Department of Justice formally accused a
group of universities of price-fixing in 1991.) Answer the
following questions about behavior in the market for higher
education.
a. Describe one factor of the market for higher education that
invites tacit collusion.
b. Describe one factor of the market for higher education that
works against tacit collusion.
c. Explain one way in which universities could engage in illegal
collusion.
d. What are three ways in which universities engage in product
differentiation?
e. Explain how price leadership might work in the university
setting.
f. What forms of nonprice competition do you see universities
engaged in?