For example, firms might elect a price leader that is tasked with leading changes in prices before other firms follow suit in order to “react to competition.” Firms may also agree to change their prices on specific dates in such cases, the changes may be seen as merely a reaction to economic conditions such as fluctuations in inflation. Nonetheless, firms have devised ways to achieve price collusion without being detected by regulators. In most markets, antitrust laws exist that aim to prevent price collusion and protect consumers. This is quite important, as new firms may offer much lower prices and thus jeopardize the longevity of the colluding firms’ profits. By controlling prices, oligopolies are able to raise their barriers to entry and protect themselves from new potential entrants into the market. Firms see more economic benefits in collaborating on a specific price than in trying to compete with their competitors. The biggest reason why oligopolies exist is collaboration. Most oligopolies exist in industries where goods are relatively undifferentiated and broadly provide the same benefit to consumers. In an oligopoly, all firms would need to collude in order to raise prices and realize a higher economic profit. Thus, no single firm is able to raise its prices above the price that would exist under a perfect competition scenario. In an oligopoly, no single firm enjoys a large amount of market power. The term “oligopoly” refers to an industry where there are only a small number of firms operating.
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