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-Less incentive to be efficient/innovative/produce new products
-More resources to protect market dominance by raising barriers to entry
+More funds for investment and R&D
+Reserves to overcome short term difficulties (eg: stability to employment)

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-Higher prices, lower output for domestic consumers
+Financial muscle to compete effectively against multinational firms

    


-Productively inefficient(MCтAC)
+Economies of scale: AC likely lower than most efficient perfectly competitive firms (MC=AC)

    

-Misallocation of resources (PтMC) (Less choice/Lower quality)
+Avoid unnecessary duplication of capital (eg: airport runway / railway track / electricity/water
distribution network)

   

-Wastes resources as profits from one sector is used to finance losses in another
+Increased range of goods (eg: provision of essential loss-making services: rural bus/mail services)

  



-Raise producer surplus, reduce consumer surplus/welfare
+Raise firm͛s total revenue(TR) to allow survival of essential services

   
 
  

-Complacent monopoly raises entry barriers by limit/predatory pricing
+Supernormal profit acts as incentive for rival firms to breakdown monopolies through creative
destruction by investing in R&D and innovations
 


: Firms agree to restrict competition between themselves by fixing prices and restricting output
to secure joint profit maximisation.

Price fixing, restrict output (allocating market share)
Limit advertising budget
Share market/technical info
  

Firms have an understanding on pricing and output decisions often through price leadership (eg:
Other firms follow pricing decisions of market leader)

 

Oligopolistic market structure (so few major firms to reach an agreement)
Effective monitoring system to prevent cheating
No potential competition (eg: hit-and-run) /no effective competition
Similar cost structure for similar pricing decisions
Stable, mature industries (eg: steel)

 
 
 
Same prices
Raise prices by same amount at the same time
High supernormal profits
High share prices


 

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-Competition Commission: -Fines up to 10% of annual revenue/ Imprisonment for directors
-Whistle blowers protected by competition law
- 
 
:
-Cartels tend to breakdown due to cheating
-Independent firms (competition) gain market share at expense of cartel members
-Similar cost structures: firms are innocent, just responding to increases in production costs
-technological change (internet) undermines price/output agreements

-Tacit collusion: - hard to prove

-long investigation means collusion still goes on
-opportunity cost of investigation: funds/time
-Welfare loss depends on magnitude of price fixing
 
+Share R&D costs=wider range of products, higher quality, more choice
+Less wastage on advertising
+Share technical info=improve safety of products/ safety of workers


-higher producer surplus, prices
- lower consumer surplus, quality, choice=welfare loss
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-rationalise supply chain
- invest in new technology (increase productivity to lower unit costs)
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+Easier to plan investments
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