IAI Actuarial Core Principles · Business Economics · Relationship between the government and the individual firm
Which of the following is an example of a firm engaging in collusion that competition law would typically prohibit?
Rival insurers privately agreeing to fix premium rates is prohibited collusion. Such a cartel removes price competition and harms consumers, whereas price cuts, advertising, innovation and market entry are ordinary competitive behaviour.
- AA firm reducing prices in response to cost savings
- BTwo rival insurers agreeing privately to fix premium ratesCorrect
- CA firm advertising its products more heavily than rivals
- DA firm developing a patented product
- A firm entering a new market segment
Explanation
Price-fixing agreements between rivals are cartel behaviour that removes competition and are generally prohibited. The other actions are normal competitive conduct.
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