Many real oligopolies, marked by economic changes, legal and political pressures and the egos of their senior managers, are going through episodes of cooperation and competition. If the oligopolies could maintain cooperation between themselves in terms of production and pricing, they could reap profits as if they were a monopoly. However, each company in an oligopoly is encouraged to produce more and gain a greater share of the global market; When companies start to behave in this way, the market outcome may be similar, in terms of price and quantity, to that of a very competitive market. How did this soap opera end? Following an investigation, the French antitrust authorities fined Colgate-Palmolive, Henkel and Proctor and Gamble for a total of 361 million euros (US$484 million). Ice manufacturers have had a similar fate. Ice bags are a commodity, a perfect substitute that is usually sold in 7 or 22 pound bags. No one cares about the label on the bag. By agreeing to cut out the ice market, control large geographic areas and set prices, ice cream manufacturers have moved from perfect competition to a monopoly model. Under the agreements, each company was the sole supplier of ice bags in an area; Both in the long term and in the short term, there have been benefits.

According to the court, these companies conspired illegally to manipulate the market. The fines were about $600,000 — a large fine considering that a bag of ice is sold for less than $3 in most parts of the United States. Agreements to calculate the monopoly price and provide half the market each are the best thing companies could do in this scenario. However, the Nash balance alone of this model is not the only Nash balance of this model if the marginal costs that are the uncooperative result were not agreed upon and insisted. Since oligopolists cannot sign a legally enforceable contract to act as a monopoly, companies can instead closely monitor what other companies produce and calculate. Alternatively, oligopolists can choose to act in such a way that each company under-pressure to stick to its agreed production volume. Oligopolistic firms have been called « cats in a bag, » as mentioned in this chapter. French detergent manufacturers have decided to make each other « comfortable. » The result? A turbulent and difficult relationship.

When the Wall Street Journal reported on it, he wrote: « According to a statement from a Henkel director at the [French anti-trust commission], detergent manufacturers wanted to « limit the intensity of competition between them and clean up the market. » Yet by the early 1990s, a price war had broken out among them. Complex pricing structures were put in place during soap managers` meetings, which sometimes lasted more than four hours. « One executive remembered chaotic meetings when each party tried to figure out how the other had bended the rules. » Like many cartels, the soap cartel dissolved because each member was trying to maximize their individual profits. Several factors are deterresing. First, pricing in the United States is illegal and there are antitrust laws to prevent business-to-business agreements. Secondly, coordination between companies is difficult and the number of companies involved is all the more important. Third, there is a risk of overtaking. A company may agree to meet and then break the agreement, undermining the profits of the companies that still maintain the agreement. Finally, a company may be deterred from collusion if it is not able to effectively sanction companies that could break the agreement.

Posted in Non classé
outrun69

Comments are closed.