Question 2.
Explain how organizations can collude to raise
Collusion is an agreement between firms to set the prices of their goods to gain an advantage. Equilibrium in market is disrupted as supply and demand is no more natural.
Organizations can collude to raise prices of products to increase their profits or say to maximize industry profits. As a result, the prices will be higher than the market clearing prices and output will be lower.
Price fixing can be used to set the prices high rather then determining through market forces. Horizontal price fixing can be used to set the prices of products. Price leadership can be followed where the dominant firm will set a price and other firms will follow it by setting the same price.
By restricting output, or say by deciding to produce a limited and fixed output, firms can form collusion and can set high price.
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