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    Tacit Agreement in Oligopoly

    / 15 de mayo de 2023

    In the world of economics, an oligopoly is a market form in which a few firms dominate the market. The behavior of firms in an oligopoly is often influenced by tacit agreements. Tacit agreement refers to an unspoken understanding that exists between competing firms. This type of agreement is not formal or written, but it is understood by all parties involved.

    One of the most common tacit agreements in an oligopoly is price leadership. Price leadership is when one firm in the oligopoly sets the price of the goods or services it offers. The other firms in the oligopoly then follow suit and set their prices at a similar level. This type of tacit agreement is beneficial to all firms involved because it helps to stabilize prices in the market.

    Another tacit agreement that is common in oligopolies is the allocation of market shares. In this agreement, each firm is assigned a specific market share. This can be determined by factors such as the size of the firm, the quality of its products or services, or its reputation in the market. Once the market shares are allocated, the firms then tacitly agree to maintain those shares.

    The tacit agreement of limiting competition is also common in an oligopoly. Firms may agree to not engage in aggressive marketing campaigns or engage in price wars that could harm the profits of the other companies. This agreement allows firms to maintain their profits and ensure that the market remains stable.

    However, while tacit agreements may be beneficial to firms, they can also be harmful to consumers. By limiting competition, firms can increase their profits at the expense of consumers. Additionally, because tacit agreements are not formal, they can be difficult to detect and even more difficult to prove.

    In conclusion, tacit agreements play a significant role in oligopolies. They help to stabilize prices, allocate market shares, and limit competition. While these agreements may be beneficial to firms, they can also be harmful to consumers. It is important that regulators closely monitor oligopolies to ensure that these tacit agreements do not harm consumers or violate antitrust laws.

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