Reference no: EM13962706

One of the most famous cases of collusion in the United States involved some very unusual methods of conspiracy. In 1960 an extensive price-fixing and market-sharing scheme involving heavy electrical equipment such as transformers, turbines, circuit breakers, and switch gear was uncovered. Such participants as General Electric, Westinghouse, and Allis-Chalmers had developed elaborate covert schemes to rig prices and divide the market. Consider switch gear equipment:

At . . . periodic meetings, a scheme or formula for quoting nearly identical prices to electric utility companies, private industrial corporations and contractors was used by defendant corporations, designated by their representatives as a “phase of the moon” or “light of the moon” formula. Through cyclic rotating positioning inherent in the formula one defendant corporation would quote the low price, others would quote intermediate prices and another would quote the high price; these positions would be periodically rotated among the defendant corporations … This formula was designed to permit each defendant corporation to know the exact price it and every other defendant corporation would quote on each prospective sale.

At these periodic meetings, a cumulative list of sealed bid business secured by all of the defendant corporations was also circulated and the representatives present would compare the relative standing of each corporation according to its agreed upon percentage of the total sales pursuant to sealed bids. The representatives present would then discuss particular future bid invitations and designate which defendant corporation should submit the lowest bid therefore, the amount of such bid, and the amounts of the bid to be submitted by others.1

---Using the above story as the example, explain how this illustrates a potential collusion agreement and what, specifically, about this behavior would lead to development of oligopolistic price-output behavior by the firms involved.---