Difference between Collusive and Non-collusive Oligopoly

Difference between Collusive and Non-collusive Oligopoly-min

The basic difference between the collusive and non-collusive oligopoly is the degree of competition in the market. In a collusive oligopoly, the competition is being eliminated by a few firms through a formal agreement. On the other hand, in non-collusive oligopoly, there is a competition of firms having their own prices and output policies.

To know the difference between these two, we must clear the meaning of these terms:

Meaning of Collusive Oligopoly:-

Collusive Oligopoly is that market in which firms cooperate with each other in determining the price. Further, they follow a common price policy and do not compete with each other. In other words, it is a form of market in which there are few firms in the market and all decide to avoid competition through a formal agreement. Thus, They collude to form a cartel. In this, the Price and output of the member firms are fixed as a collective/ cooperative decision. Sometimes, A leading firm in the market is accepted by the cartel as a price leader. Members of the cartel accept the price policy as specified by the price leader. It is also known as a Cooperative oligopoly.

Meaning of Non- Collusive Oligopoly:-

Non-Collusive Oligopoly is a market in which the firms act independently. They compete with each other and determine independently the price of their products. In other words, it is a market in which there are few firms in the market. Each firm pursues its own price and output policy independent of the rival firms. Thus, every firm tries to increase its market share through competition. Here, competition refers to collusion as a means of profit maximization. Because, there are only a few big firms in the market, there is cut-throat competition. Therefore, in this market, aggressive advertisement develops through brand loyalty. Also, it can be known as a Non-cooperative oligopoly.

Chart of Difference between Collusive and Non Collusive Oligopoly:

Basis of Difference Collusive Oligopoly Non Collusive Oligopoly
Meaning

It refers to a form of market in which sellers eliminate the competition through a formal agreement.

It refers to a form of market in which each firm has its own price and output policy independent of rival firms.
Collusion Here, the few sellers collude to cartels to avoid competition. Here, competition is preferred to collusion as a means of profit maximisation.

Price and output decisions

In this market, the price and output decisions of a cartel are mutual. In this market, each firm has its own price and output decisions.

Interdependency

Here, the firms’ decisions are interdependent of each other. In this, the firms’ decisions are independent of rival firms in the market.

Competition

There is no competition in th market due to collusion. Here, there is cut-throat competition among the firms.

Selling costs

There is no need to incur expenditure to create brand loyalty. Under this, aggressive advertisement develops brand loyalty.

Also known as

This market is also known as Cooperative Oligopoly. This market is also known as Non-Cooperative Oligopoly.

Creation of Monopoly

This market is like a monopoly as cartels have full control over the price and can earn monopoly profits. There is no such market formation under this market.


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Difference between Collusive and Non collusive Oligopoly 300x216 - Difference between Collusive and Non-collusive Oligopoly
Difference between Collusive and Non-collusive Oligopoly 

 

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Difference between Collusive and Non-collusive Oligopoly

Conclusion:

Thus, these both market structures are different in many aspects. The major difference is that the collusive oligopoly creates cartels. On contrast, non-collusive oligopoly develops cut-throat competition in the market.

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