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Why do consumers care about whether companies in an oligopoly collude? What is your viewpoint regarding the government’s role in this?

The basic theory of market economics states that free competition between companies providing consumer goods will lead to better products at lower prices.  On a personal level, when I go to the store, I look at the items on sale, and I can either select the cheapest, or I can select a more expensive item, in which case I generally have some reason for that preference.  In other words, if I choose to buy a more expensive item, it will be because I think it's better.


If there are only two or three companies producing a particular item, and they collude, agreeing to all charge a higher price than the minimum that would allow them to stay in business, then I will be forced to pay more for my purchase than if they were really competing.  And since I will see the illusion of competition, it will not occur to me to start my own company competing with them.  If there would only be one monopoly producer, and I have an idea that I could make money selling their product cheaper than they do, I would build my own factory, and soon the price would be lower, or quality would be better.  But if I think there is competition, I will be less likely to take the risk of building a factory.


So, collusion between companies in oligopoly industries (if there are hundreds or thousands of suppliers, there will always be someone to break the rules and sell cheaper than everyone else) will keep prices higher and quality lower than free competition.


Since the temptation for companies to collude is very strong, and consumers' ability to investigate and detect collusion is very small, this is a clear case of potential market failure and is therefore a valid candidate for government intervention to keep companies honest.


As an example, without this government intervention, computer and smartphone manufacturers would have colluded to keep prices high and save money on research and development and we would have missed the incredible price drops and quality improvements that we have seen every year since 1980.

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