ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Collusion between firms is harmful to consumers. This is because firms collude to raise prices, as mentioned earlier, resulting in the price level seen below. This reduces the consumer surplus available, reducing the welfare of individuals.

Detailed explanation-2: -Collusion can lead to: High prices for consumers. This leads to a decline in consumer surplus and allocative inefficiency (Price pushed up above marginal cost) New firms can be discouraged from entering the market by types of collusion which act as a barrier to entry.

Detailed explanation-3: -Collusion is a non-competitive, secret, and sometimes illegal agreement between rivals which attempts to disrupt the market’s equilibrium. The act of collusion involves people or companies which would typically compete against one another, but who conspire to work together to gain an unfair market advantage.

Detailed explanation-4: -Which of the following is most likely the reason for the breakdown and collusive behavior between firms an oligopoly, The answer is one firm can gain short term profit. An oligopoly is a market structure in which a small number of large firms dominate the market firms cooperate to control the market.