Oligopoly is a market structure that is generally found in large industries with several companies controlling the market. In oligopoly, there is a more complex form, namely collusive oligopoly.
Collusive oligopoly is a form of oligopoly in which the companies in it work together secretly to influence the market. They build an agreement so that prices and production remain stable so that it is mutually beneficial between the companies in it. Of course, collusive oligopoly has some unique characteristics and can differentiate it from other forms of oligopoly.
Characteristics of a collusive oligopoly
To better understand collusive oligopoly, we need to know more about its characteristics. The following are some of the characteristics of a collusive oligopoly:
1. Number of companies
A collusive oligopoly consists of a few companies dominating the market. The number of companies involved usually ranges from 2 to 10 companies.
2. Homogeneous or differentiated products
Products produced by companies in a collusive oligopoly can be homogeneous or differentiated products. Homogeneous products are products that are similar or exactly the same as products produced by other companies in the market. Meanwhile, product differentiation is a product that has differences or uniqueness that distinguishes it from products produced by other companies.
3. Reliance on competitors’ decisions
Due to the small number of companies, every decision taken by one company will greatly affect the decisions of other companies. Therefore, companies in a collusive oligopoly are very dependent on the decisions of their competitors.
4. High barrier to entry
Due to the domination held by companies in the collusive oligopoly, entry barriers for new companies wishing to enter the market will be very difficult.
5. High profit
Due to the agreements built between firms in a collusive oligopoly, they are able to maximize profits by avoiding costly price and production competition between firms.
Types of Collusive Oligopoly
Collusive oligopoly consists of several types and each type has its own characteristics and advantages for the companies involved in it. Following are some types of collusive oligopoly:
1. Cartels
Cartel is a form of collusive oligopoly in which several companies in an industry work together to influence prices and production in the market. In a cartel, there is usually an agreement to divide the market and prevent the entry of new competitors.
2. Quotas
Quotas are a form of collusive oligopoly in which each company in the market has certain production limits to maintain price stability. In quotas, each company is given a quota or limit on the amount of production that can be produced within a certain period of time.
3. Price Leadership
Price leadership is a form of collusive oligopoly in which one firm in the market is the leader in setting prices. Other companies will follow the price set by the market leader.
Collusive Oligopoly
The following are some examples of collusive oligopoly that have occurred in the world:
a. OPEC
OPEC or Organization of the Petroleum Exporting Countries is an example of a cartel in the petroleum industry. OPEC consists of 14 of the world’s largest oil producing countries that work together to set world oil prices and limit the amount of production so that oil prices remain stable.
b. De Beers
De Beers is a company that dominates the diamond market worldwide and is an example of collusive oligopoly in the diamond industry. De Beers used a monopoly strategy to control the supply of diamonds and keep prices high in the market.
c. airlines
The aviation industry is also an example of a collusive oligopoly, especially in the airline ticket market. Several major airlines, such as Delta, United and American Airlines, were accused of working together to increase ticket prices simultaneously.
Impact of Collusive Oligopoly
The impact of collusive oligopoly on markets and consumers can be very diverse. On the one hand, the profits obtained by companies in a collusive oligopoly can be enormous. However, on the other hand, consumers can be negatively impacted such as higher prices or a lack of product choices. And the following are some of the impacts of collusive oligopoly on the market and consumers:
a. Higher prices
One of the most common effects of a collusive oligopoly is prices that are higher than they should be. When companies in a collusive oligopoly work together to increase the price of a product or service, consumers will be affected by paying a higher price. This mainly affects consumers who are less able or do not have many alternative product choices.
b. Lack of product choices
In a collusive oligopoly, the companies involved tend to work together to limit the supply and variety of products. This can mean a lack of product choices available in the market, so that consumers have little choice in choosing products that suit their needs and preferences.
c. Lack of innovation
When companies in a collusive oligopoly do not face fair competition, they tend to be less innovative in developing new products or improving the quality of existing products. This can impact technological advances and innovation in certain industries, as well as reduce the product choices available to consumers.
d. Increasing market power
When firms in a collusive oligopoly work together, they have greater market power than when they compete freely. This could mean that these companies have greater influence in determining the price and quality of products, as well as other policies related to the market.
Efforts to Overcome Collusive Oligopoly
There are several efforts that can be made to help prevent collusive oligopoly practices and ensure the creation of fair market competition
And here are some of those efforts:
a. Government regulation and supervision
The government can issue regulations and policies that limit collusive oligopoly practices, such as prohibitions on forming cartels or colluding to determine prices. In addition, the government can carry out supervision and law enforcement actions against collusive oligopoly practices that occur in the market.
b. Increase market transparency
Increased market transparency can help prevent collusive oligopoly practices. By providing broader access to information about product prices and quality, it will be easier for consumers to compare products and choose products that suit their needs and preferences.
c. Encouraging market competition
Healthy market competition can prevent collusive oligopoly. Therefore, the government can encourage market competition by providing incentives for companies to innovate and develop new products, as well as facilitating the entry of new competitors into the market.
d. Improve consumer education
Improving consumer education can help prevent collusive oligopoly practices from occurring. Consumers who are more aware and understand about their rights and obligations as consumers will find it easier to identify harmful practices and take appropriate action.
Summary
Collusive oligopoly is a form of unhealthy business practice, in which the companies involved work together to limit competition and increase the price of products or services. The impact of a collusive oligopoly on markets and consumers can be disastrous, such as higher prices, less product choice, and less innovation. Therefore, prevention and handling of collusive oligopoly is very important to create healthy market competition and protect consumer rights. The government and society need to work together in taking appropriate action to prevent collusive oligopoly practices and ensure the creation of a fair and healthy market for all parties.
