1. Oligopoly – Collusive vs. non-collusive
Lesson aims:
To be able to distinguish between collusive and non-collusive oligopolies
To explain what a cartel is

2. Recap What is an oligopoly?
What are the main assumptions of an oligopoly?
How do firms in oligopolistic markets compete?
Why do they not compete on price?
What is collusion?

3. Collusive vs. non-collusive
Firms who collude work together for their benefit
They make agreements between themselves to restrict competition, and create and maintain ‘barriers to entry’
A non-collusive oligopoly is where the firms work independently and for themselves as ‘normal’ businesses
They are, however, interdependent when it comes to pricing policy

4. Look at table 2, p.347…
If the output was 6 million units, each firm would earn 0 supernormal profit…
If they halved it to 3 million units, the total supernormal profit would be £9 million, which could be shared between the firms!
*Can we see why firms might want to collude?

5. Collusion
A ‘cartel’ is a group of firms who work together, often to restrict output/supply and artificially keep prices as high as they can, limiting competition and keeping their market power
Formal collusion is where firms make an agreement that they will work together and not cheat
Tacit collusion is where firms work together unofficially using ‘unwritten rules’
Cartels are illegal – except for OPEC (Organisation of the Petroleum Exporting Countries)

6. Question 3, p.348 (10 minutes)

7. OPEC – Research OPEC in groups and find out (15 minutes):
What countries are members?
What do they do?
How do they work for the benefit of each other?
Why do they collude?
Should they be allowed to?

8. Okay…
What are the differences between a collusive and non-collusive oligopoly?
What is a cartel?
What is formal collusion?
What is tacit collusion?
Why do firms collude with each other?
Can you think of any other examples where collusion may take place?