Courses : Intermediate Microeconomics Lecturer : Frischa Adellia Semester : 4th Semester, 2022/2023 Sesion Theory of the Tendency To Collusion The Tendency to Collusion Theory suggests that in an oligopoly market there is a tendency for collusion or cooperation between oligopolistic firms to set prices and divide the market. This theory is based on the assumption that oligopoly firms are more likely to make joint decisions to gain greater profits than to compete aggressively with each other. Features of the Tendency to Collusion Theory include: 1. There is a tendency to collude: An oligopoly market has a tendency to collude because the oligopolists are dependent on each other in determining prices and production. By working together, these companies can generate greater profits than if they compete aggressively. 2. There are high barriers to entry: Since the oligopoly market is controlled by a few large companies, it is difficult for new companies to enter the market. This is due to the existence of high barriers to entry, such as large investments in capital, expensive technology, and difficulties in obtaining permits from the government. 3. The existence of product differentiation: The products produced by oligopoly firms often have different qualities and characteristics, so that companies can set higher prices for their products. 4. There is interdependence between firms: Oligopoly firms depend on each other in making decisions regarding prices and production. The decisions of one company can affect the profits and market share of other companies, giving rise to a tendency to cooperate. 5. Game theory occurs: Oligopolists often weigh the decisions of their competitors in making price and production decisions. This gave rise to game theory strategy, in which firms must consider the reactions of their competitors in setting prices and production in order to maximize their profits. The tendency to collusion theory refers to the view that in an oligopoly market, firms tend to engage in collusion to limit competition and increase profits. This tendency arises because firms in an oligopoly market are interdependent on each other in terms of determining prices and production, so they have an incentive to work together rather than compete aggressively. However, while collusion can benefit companies, it is considered a violation of antitrust laws and can harm consumers and society as a whole. The theory of the tendency to collusion proposes that in an oligopoly market, there is a tendency for companies to engage in collusion or cooperation that benefits both parties. This is because in an oligopoly situation, each company has considerable influence over market prices and profits. By colluding, companies can reduce competition and form a collective agreement on prices and production output to maximize profits. However, this theory also shows that collusion in oligopoly is difficult to implement and maintain in the long term because there is a tendency to violate agreements. Therefore, the government usually takes a role in monitoring and ensuring that there is no collusion in the oligopoly market to maintain fair competition and protect consumers from harmful practices. One theory in economics related to oligopoly is the theory of the tendency to collusion. This theory states that in an oligopoly market, there is a tendency for companies in the market to collude in order to maximize profits. Collusion is an agreement between companies in a market to cooperate in determining the price and production of goods or services. In collusion, the firms in the market agree not to compete aggressively and raise prices together, so as to gain greater profits. However, collusion is often seen as illegal and against competition laws. Therefore, the government usually monitors oligopoly markets to prevent collusive practices that harm consumers Nonetheless, the theory of the tendency to collusion remains relevant in modern economics, especially in understanding the behavior of firms in oligopoly markets. In the theory of the tendency to collusion, there are several characteristics that can be identified, including: 1. Homogeneous or low-differentiation products: The products offered by firms involved in an oligopoly usually have a high degree of homogeneity or similarity, or have very little difference in terms of quality or characteristics. 2. Small number of firms involved: In an oligopoly, there are few firms involved in the market, so that each firm has a large influence over the market price and strategies of its competitors. 3. High barriers to entry: Since the oligopoly market is dominated by a few established firms, the barriers to entry for new firms are high. This is because new companies must invest on a large scale to be able to compete with existing companies. 4. Interdependence between firms: A firm involved in an oligopoly must pay attention to the actions of its competitors in determining its business strategy. This is because every decision taken by a company in the market will affect the decisions of its competitors and ultimately affect the overall outcome of the market. 5. Presence of collusion: Since every company has an interest in increasing profits and maintaining market share, there is a tendency to engage in collusion or cooperation in setting prices and business strategy.