Tacit Agreement Economics

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If leadership is taken to facilitate tacit (or silent) cartels, the price leader will generally tend to see a price high enough for the least profitable company on the market to achieve some return above the level of competition. Keywords: cartel, price agreement, cartel, popular theory, tacit agreement If payments for collusion (normal, normal) are more important than payments for fraud (aggressive, aggressive), then both companies will want to cooperate (tacitly). While this collusive agreement is not a balance in the one-shot game above, the repetition of the game allows companies to maintain agreements over long periods of time. This can be done, for example, if each company`s strategy is to advertise normally as long as its rival does, and to do aggressive advertising forever, as soon as its rival has used at least once an aggressive advertising campaign (see: fierce trigger) (this threat is credible because the symmetrical use of aggressive ads is a nash equilibrium at every stage of the game). Each company must then weigh the short-term profit of $30 from the “fraud” with the long-term loss of $35 in all future periods, which is part of its punishment. Provided that companies care enough about the future, collusion is a balance of this game repeatedly. Agreements usually include some form of agreement to obtain higher prices. This may include: companies that market to consumers that they “are never knowingly undersold or that claim to monitor and win the best price in a given geographical area are involved in tacit cartels. In 2015, Apple and Google were investigated following an agreement between the two companies, in which they agreed not to hire employees of the other.

This was an attempt to avoid the wage spirals caused by the alternation of workers between companies. The companies agreed to get a settlement rather than bring it to justice. This chapter examines the economic literature on tacit collusion in oligopoly markets and takes steps to clarify the relationship between economists` analysis of tacit collusion and those in the legal literature. The chapter provides an example to motivate the idea that collusive gains can be achieved through tacit coordination in an environment where there is a unique and exceptional way for collectors to maximize and distribute their common benefits. It also examines the barriers to achieving competitive gains in less simple environments, without the need for explicit communications.. . . .

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