OLIGOPOLY BEHAVIOR AND PRICE FIXING: THEORETICAL INSIGHTS AND POLICY IMPLICATIONS

Abstract

This article explores the dynamics of firms operating in oligopolistic markets, emphasizing the practice of price fixing. Price fixing, a form of collusion, involves firms agreeing to maintain artificially high prices, leading to maximized collective profits at the cost of reduced competition and consumer welfare. Through synthesizing key theoretical frameworks and empirical evidence, this paper outlines the mechanisms behind price fixing, its implications, and the effectiveness of regulatory interventions. Theoretical models, such as Stigler's theory of oligopoly and the kinked demand curve, are discussed to provide insights into firms' incentives to collude. Empirical studies highlight the prevalence of price-fixing conspiracies across industries, illustrating its negative effects on market efficiency and consumer choice. Finally, the role of government intervention and anti-trust enforcement in curbing this anti-competitive behavior is evaluated.