Question

What keeps oligopolistic industries from abusing the market power they hold, forming into collusive cartels, or merging into dominant monopolies?

Answer 1

Oligopoly is characterized by the interdependence among the firms which creates an uncertain environment.One way to overcome this uncertainty is coordination/collusion among the firms, be it explicit or implicit(tacit).Howerver the collusion among the firms is often constrained by the fear of cheating and competition policies of the country. Fear of cheating creates issue of credibilty and destablize the cartels. Also cartels are illegal in many countries as they are considered antithesis of competition and allocation efficiency.