If you`re in the business world, you`ve likely heard the term oligopoly. An oligopoly is a market structure in which a small group of firms controls the majority of the market. In some cases, these firms may collude, or work together, to maintain their dominance in the market. This agreement is referred to as an oligopolistic agreement.
An oligopolistic agreement is a collusion between two or more firms in the same market to control prices, production, or other aspects of the market. This type of agreement is often illegal, as it violates antitrust laws that are designed to promote fair competition and prevent monopolies.
To better understand an oligopolistic agreement, it`s helpful to examine some real-world examples. For instance, in the late 1990s, major airlines in the United States were accused of colluding to raise prices on domestic flights. The airlines were able to do this by limiting the number of available seats, making it harder for customers to find affordable tickets.
Another example of an oligopolistic agreement occurred in the early 2000s, when major banks in the United States were accused of colluding to manipulate the LIBOR, a benchmark interest rate used in financial markets. By artificially inflating or deflating the LIBOR, these banks were able to make profits at the expense of consumers and investors.
Despite the illegality of oligopolistic agreements, they can be difficult to detect and even harder to prove. Firms may use tactics such as secret meetings, coded language, and other covert measures to hide their collusion from regulators and the public.
In conclusion, an oligopolistic agreement is a collusion between two or more firms in the same market to control prices, production, or other aspects of the market. This type of agreement is illegal and violates antitrust laws designed to promote fair competition and prevent monopolies. While difficult to detect and prove, regulators are vigilant in monitoring markets for signs of collusion and taking action when necessary.