CMA Foundation · Fundamentals of Business Economics and Management · Forms of Market
Three large Indian cement producers privately agree to fix a common selling price and share the market. In economic terms this arrangement is called a:
An explicit agreement among a few firms to fix price and share the market is a collusive oligopoly, or cartel. It differs from price leadership, where firms follow a leader's price without any formal agreement.
- ACollusive oligopoly (cartel)Correct
- BPerfectly competitive market
- CMonopolistic competition
- DPrice leadership without agreement
Explanation
When firms in an oligopoly explicitly agree on prices or output, they form a collusive oligopoly, commonly called a cartel. Price leadership involves no formal agreement, as firms merely follow a dominant firm, so option D is wrong. The other two forms involve many independent sellers.
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