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Explain the economic theory behind deterrence and collusion (Essay Sample)


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Explain the economic theory behind deterrence and collusion.
According to the economic theory of deterrence and collusion, firms seek to collude in the hope of setting market prices. The goal here is to increase industry profits while limiting the smaller firms from having any impact in the market.
What is the argument for charging firms damages for participating in a cartel? What is the motivation behind trebling payoffs?
The argument for charging firms damages for participating in a cartel stems from the fact that small firms and customers end up being pawns in the market. Small firms are greatly affected as their impact and efforts in the market are completely thwarted.
The motivation behind trebling payoffs comes from the exploitative prices set by the cartels.
What should be included in the set of damages from a cartel? What are the costs of a cartel to the economy?
The costs incurred by consumers as well as the losses experienced by the small firms as a result of the deterrence efforts of the cartels.
Cartels can be damaging to the economy. They first ensure that prices are higher than competitive prices. They can also prevent development in ways that will help ensure prices are lowered.

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