Collusive oligopoly:

In the case of collusive oligopoly the competing firms collude in order to reduce the uncertainties cropping out of the inherent rivalries among them. The colluding firms are usually bound by agreements whereby they seek to maximise the joint profit of the group. OPEC is an example of such type of collusion. In the following discussion, we would analyse the behaviour of  firm by considering - Cartels, Mergers, Price Leadership and Basing-point Price System.  

The competing firms in an oligopolistic market enter into a collusion to reduce the inherent uncertainties. In this unit, we have mainly focused on how the firms arrive at the equilibrium market price and output. There are various forms of collusion, viz., cartel, merger, price leadership and basing-point system of price fixing. In a cartel, the firms seek to maximise the joint profit with the help of a central agency. In a merger, the firms merge together as one. Accordingly, we can have horizontal mergers, vertical mergers or conglomerate mergers. Under price leadership, a particular firm with certain characteristics is chosen as the leader to determine the market price at which the others would produce and sell. In the basing-point price system, the oligopolists agree on a common place as the basing-point, and all the firms set the price as the production price (mill price) at the basing-point plus the transport cost from that point to the place of destination. Under this category, we have single point and multiple point pricing. In the former case, the firms have a single location as the basing-point and in the latter, the firms have more than one basing-point.