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Competition can be defined as “the effort of two or more parties acting independently to secure the business of a third party by offering the most favourable terms”. Firms can compete via price competition or non-price competition.
Price competition occurs whenever firms use price as the basis for attracting and retaining customers. There are a number of different pricing strategies that firms can use. These include competitive pricing, destroyer/predatory pricing, psychological pricing and penetration pricing.
Non-price competition refers to all forms of competition other than through the price mechanism. Non-price competition involves firms focusing on areas such as quality, design, after sales services and other marketing factors such as product differentiation, branding and advertising.
Collusion occurs when two or more firms act together to set price, output or other conditions of sale. Collusion is most likely to occur in oligopolistic markets where a few large firms dominate the market. Collusion can be explicit or tacit.
Explicit collusion occurs where the firms set price and output as though they were a monopolist. They then divide the output between themselves with each firm producing its allocated quota. An explicit collusive agreement is known as a cartel, example. OPEC
Tacit (implicit) collusion on the other hand occurs whenever firms take seemingly independent, but parallel actions that result in higher prices and profits. This often occurs when smaller firms match the price changes of the barometric leader.
lydiajane74 answered the question on July 4, 2018 at 13:31
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