Question

why there is always a fear of collusive behavior in oligopolies but that certain economies might prevent that as companies fight for available market share please explain.

Answer 1

There is always a fear of collusive behavior in oligopolies because strategic behavior plays an important role in oligopolies. The decision of one player in the market is dependent on other players in the market. Thus, colluding and entering into agreements to charge high prices from consumers is an important game strategy of the players in the market. However, certain economies might prevent that because each player has an incentive to not follow the terms of the agreement in order to grab a higher market share as compared to its competitor and earn higher profits. Thus, they might cheat on the agreement and charge low price but this is only possible in case of finite games but not in the case of infinite games.

Thus, there is always a fear of collusive behavior in oligopolies but certain economies might prevent that as companies fight for available market share.