public policy
PUBLIC POLICY TOWARD OLIGOPOLIES
However these laws have stirred up much controversy as to what type of conduct should or should not be allowed. Such examples are:
- From society's point of view, cooperation between oligopolies is not sought after as this would result in low yields of production and increase prices.
- Instead they encourage competition between these firms.
- Common law prevents this cooperation from taking place.
- Article 101 of the Treaty on the Functioning of the European Union states that 'competition between two or more firms regarding the limiting of competition is prohibited'.
- Article 102 of the Treaty forbids firms who are in a dominant position in the market to not abuse or take advantage of this situation.
However these laws have stirred up much controversy as to what type of conduct should or should not be allowed. Such examples are:
- Resale Price Maintenance (Fair Trade): Here manufacturers oblige their retailers to charge consumers a fixed price. However economists have debated that this is not intended to cut competition and that there is valid reasoning to it as some retailers offer knowledgeable skills and services.
- Predatory Pricing: Here firms with dominant power in the market take advantage of their situation by lowering their prices severely with the intent of eliminating other firms from market. However this is not seen as a profitable strategy and it can sometimes be difficult to differentiate between predatory and competitive pricing.
- Tying: Here firms sell two products together at a single price, disregarding whether the consumer does or does not want the second item. However this action cannot change market power as consumers would be just as content to buy the items individually as the second item is generally not sought after and is slow-selling.