Competition or Collusion?

Abstract

Since it seems that firms can raise their net return by forming monopolies, why is there not a monopoly in every industry? This is especially hard to answer for a theory assuming that firms strive to maximize their net return, for then one must explain the state of competition in an industry as resulting from the fact that collusion is not always more lucrative than competition. That is, a group of colluding firms may encounter costs of collusion itself that would be absent under competition. One of the main tasks of this chapter is to study these costs and how they relate to industry structure.