... In some circumstances, the firms may collude to raise prices and restrict production in the same way as a monopoly. Collusive oligopoly also creates a barrier to entry for new entrants to the market. When a formal agreement for such collusion takes place, known as a cartel, it is done in an attempt to stabilise unstable markets, and as a result, reducing the risks which are natural in these markets for investment and product development. There are legal restrictions on such collusion in most countries, including the UK1. There does not, however, have to be a formal agreement for collusion to take place. For example, in some industries, there may be an acknowledged market leader which informally sets prices to which other producers respond, known as price leadership, which is a form of Tacit Collusion. Only when communication takes place between companies is the act illegal. Oligopolists believe that if they ...

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