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What Is An Agreement Among Members Of An Oligopoly

It is interesting to note that both the problem of maintaining an oligopoly and the coordination of actions between buyers and sellers in general on the market involve the disbursements of various detention dilemmas and coordination games that are repeated over time. As a result, many of the same institutional factors that facilitate the development of the market economy by reducing prisoner dilemmas among market participants, such as the safe application of contracts, high-confidence and reciprocity cultural conditions, and laissez-faire economic policy, could also help to promote and maintain oligopolies. Among the oligopolies of history are steel producers, oil companies, railways, tyre manufacturing, food chains and mobile operators. The economic and legal concern is that an oligopoly can block new entrants, slow innovation and raise prices, which harms consumers. Companies in an oligopoly set prices, whether collectively – in a cartel – or under the direction of a company, instead of withdrawing prices from the market. Profit margins are therefore higher than in a more competitive market. When, in a given market, oligopoly companies decide how much they produce and the price they charge, they are tempted to act as if they were a monopoly. Joint action allows oligopolistic companies to maintain industrial production, demand a higher price and share profits. If companies work together in this way to reduce production and keep prices high, it is called collusion. A group of companies that have entered into a formal agreement to produce monopoly production and sell it at the monopoly price is referred to as an agreement. A more detailed analysis of the difference between the two can be seen in Clear It Up below.

The prisoner`s dilemma is a scenario in which the benefits of cooperation are greater than the benefits of pursuing one`s own interests. It`s good for oligopoly. The story behind the prisoner`s dilemma is this: the amount requested in the market can also be two to three times greater than the amount needed to produce with the minimum of the average cost curve – meaning that the market can accommodate only two or three oligopoly companies (and they do not need to produce differentiated products). Again, small businesses would have higher average costs and would not be able to compete, while other large firms would produce such a large quantity that they could not sell them at a cost-effective price.

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