2

COLLUSION: CARTELS AND PRICE

LEADERSHIP
Unit structure

2.0 Objectives
2.1 Introduction
2.2 Price leadership
2.3 The Theory of Games
2.4 Game theory: Nash Equilibrium
2.5 What should Nigel and Amanda do?
2.6 Summary
2.7 Questions

2.0 OBJECTIVES

To study the concept Collusion.

To study the meaning of price leadership and its different
forms.
To study the meaning and definitions of Theory of Games.
To study Nash equilibrium and Prisoner‘s dilemma.

2.1 INTRODUCTION

One way of avoiding the uncertainty arising from

interdependence under oligopoly is to enter into mutual or
collusive agreements. Collusion is mainly of two types, Cartels
and price leadership. Both forms imply secret agreement beacuse
open collusive agreements are mostly illegal. In the modern
business world, trade associations and professional organisations
achieve in a legal or indirect way the aims of direct collusive
agreements. For instance, many trade associations issue various
periodicals with information concerning actual or planned action
of members, in this manner, firms get the message and act
accordingly.