Buisness Economics and Accounting

Business Economics & Accounting,

Business Economics & Accounting

Z0953860

Summative Assignment

2. Critically examine the economic rationale for collusive behaviour and the

economic impact it might have. Use examples, empirical evidence and

diagrams to illustrate your argument.

Personal declaration:

I confirm that this assignment is a result of my own work. Furthermore, I confirm that I

understand the definition of plagiarism that is used by Durham University, and that all

source material has been appropriately cited and referenced.

Date: 1st December 2014

Word count: 2004 words

1

Z0953860 – Business Economics & Accounting, Executive MA Management

“People of the same trade seldom meet together, even for merriment and

diversion, but the conversation ends in a conspiracy against the public, or in

some contrivance to raise prices.”

Adamsmith.org, 2014 cited by Adam Smith, 1776

Much has changed since Adam Smith’s statement in The Wealth of

Nations written in the 18th century, although, what it implies about the behaviour

of some businesses in the same industry is something that we still see today. As

firms in oligopolistic markets recognise their interdependence, sometimes they

engage in collusive agreements to limit the competition between each other and

most importantly, to act as monopolists in order to gain higher profits (Sloman,

Hinde and Garratt, 2013). Nowadays, even with stricter law enforcement and

broader awareness of this type of –generally1- illegal conduct, collusive

behaviour continues to occur; this is due to the concept that firms are motivated

by profit and that competition might be very hard on businesses, in terms of them

being able to survive under intense competition, and when the risks of engaging

in such behaviour are considered worth it, equating with the gains firms will

obtain if the collusive agreement is honoured by all the colluders....