What is a common result of effective collusion between firms?

What is a common result of effective collusion between firms?

• A. Increased innovation
• B. Higher prices for consumers
• C. Improved product quality
• D. Reduced market concentration

Answer: (B)

Effective collusion between firms typically leads to higher prices for consumers. When companies engage in collusive behavior, they often agree to set their prices above the competitive levels, which can result in increased profit margins for the colluding firms. This practice undermines market competition as firms restrict output and raise prices, leading to a market situation where consumers have to pay more than they would in a competitive environment. While collusion might create the illusion of stability in the market, ultimately, it restricts consumer choice and can lead to the overall detriment of market efficiency. The increase in prices is a direct consequence of reduced competition, as colluding firms collectively control a significant market share and can manipulate pricing strategies to maximize their profits at the expense of consumers.

Effective collusion between firms typically leads to higher prices for consumers. When companies engage in collusive behavior, they often agree to set their prices above the competitive levels, which can result in increased profit margins for the colluding firms. This practice undermines market competition as firms restrict output and raise prices, leading to a market situation where consumers have to pay more than they would in a competitive environment.

While collusion might create the illusion of stability in the market, ultimately, it restricts consumer choice and can lead to the overall detriment of market efficiency. The increase in prices is a direct consequence of reduced competition, as colluding firms collectively control a significant market share and can manipulate pricing strategies to maximize their profits at the expense of consumers.