If the only two firms in an industry openly agree to fix the price at a given level, then this is an example of:
A) overt collusion.
B) price leadership.
C) contestability.
D) tacit collusion.

Question

Quizplus · Accepted Answer

Overt collusion refers to when firms openly agree to fix prices in a given industry. This type of collusion is illegal and usually results in antitrust investigations and penalties. Therefore, if the only two firms in an industry agree to fix prices, it is an example of overt collusion. B is incorrect because price leadership refers to a situation where a dominant firm establishes a price that other firms in the industry follow. C is incorrect because contestability refers to the degree of ease with which new firms can enter and compete in an industry. D is incorrect because tacit collusion occurs when firms indirectly coordinate their pricing behavior without explicitly agreeing to do so.

If the Only Two Firms in an Industry Openly Agree