Tacit collusion
A) involves direct communication among competing firms.
B) is most likely to be successful if there are many competitors.
C) is seen with conscious parallelism as practiced by GE and Westinghouse in the pricing of turbine engines.
D) is not illegal.
E) is most effective when the industry does not have a firm that acts as a price leader.

Question

Quizplus · Accepted Answer

Tacit collusion refers to a situation where firms in an industry indirectly coordinate their actions by following a common pricing or output strategy without formally agreeing to do so. Conscious parallelism, as seen with GE and Westinghouse in the pricing of turbine engines, is an example of tacit collusion. This practice is not illegal in and of itself, but it can lead to antitrust concerns if it results in anticompetitive outcomes. Therefore, option C is correct. The other options are incorrect because:

A) Direct communication among competing firms would be an example of explicit collusion, not tacit collusion.
B) Tacit collusion is most likely to be successful if there are few competitors because it is easier to coordinate actions when there are fewer players in the market.
D) Tacit collusion is not illegal per se, but it can raise antitrust concerns if it leads to market inefficiencies or harms consumer welfare. 
E) Tacit collusion can be effective in industries where there is a well-established price leader who sets the market price, making it easier for other firms to follow suit, but it can also work in industries without a clear price leader.

Tacit Collusion