advertising and marketing to create a recognizable brand name. The problem in competing with, say, Coca-

Cola or Pepsi is not that producing fizzy drinks is technologically difficult, but rather that creating a brand

name and marketing effort to equal Coke or Pepsi is an enormous task.

Collusion or Competition?

When oligopoly firms in a certain market decide what quantity to produce and what price to charge, they face a

temptation to act as if they were a monopoly. By acting together, oligopolistic firms can hold down industry

output, charge a higher price, and divide the profit among themselves. When firms act together in this way to

reduce output and keep prices high, it is called collusion. A group of firms that have a formal agreement to

collude to produce the monopoly output and sell at the monopoly price is called a cartel. See the following

Clear It Up feature for a more in-depth analysis of the difference between the two.

CLEAR IT UP
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