Monopolistic competitors do not enjoy the ________ demand of perfect competition. As a result, firms will never produce at ________ average total cost.

Collusion is a secret agreement between two or more parties for a fraudulent, illegal or deceitful purpose. It results in high prices leading to lower demand and production: it is illegal under EU law and economically harmful for the nation and/or the European economies. This lead to smaller firms as average cost are higher and so the industry is less efficient.

Collusion among firms result in high prices leading to lower demand and production; thus, it is illegal under EU law and economically harmful for Europe as a whole.

Perfect Collusion (acting like a single firm) is characterized by the following:

1. Firms co-ordinate prices and sales perfectly

2. Maximum profit is reached at monopoly price and sales are split among firms.

3. Assume that firms all have equal market share, although one can increase its share at a higher price

Perfect collusion is difficult to maintain because of cheating. Thus, partial collusion may occur:

Some restrictions on sales of all firms so the mark-up is lower than the monopoly one but higher than in perfect competition

It is easier to maintain, since benefits from cheating are not as large as with perfect collusion

It offsets somehow the increased competition created by economic integration, but some restructuring will happen and some firms will exit the market

In the long-run, firm’s profits will not increase to above-normal levels. Higher prices do not result in higher long-run profits but allow more small, inefficient firms to remain in the market.

In summary, Collusion prevents the full benefits of restructuring from occurring. By keeping many firms in the market, anti-competitive behaviour thwarts part of theindustry’s adjustment that is the key to the gains from integration.