CMA Foundation · Fundamentals of Business Economics and Management · Forms of Market
Three Indian cement producers jointly agree to fix a common selling price and share the market quotas among themselves. This arrangement is best described as:
This is a collusive oligopoly, specifically a cartel, because the firms formally agree on a common price and divide market quotas. Price leadership would involve followers informally copying one firm's price, without an explicit agreement on quotas.
- APrice leadership
- BCollusive oligopoly (cartel)Correct
- CMonopolistic competition
- DProduct differentiation
Explanation
When firms formally agree on price and output quotas, they form a cartel, which is a form of collusive oligopoly. Price leadership is an informal arrangement where others follow a leader's price without a formal agreement. Monopolistic competition involves many sellers, so it does not fit.
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