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Market Collusion - bread prices

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According to a Supreme Court ruling, there once was collusion among the leading bakers and food outlets in the province of Alberta. Prior to the conspiracy, bread prices in Edmonton were about equal to the Canadian average. During the period of the conspiracy, bread prices in Edmonton were 15 to 20 percent above the Canadian average.

Explain why you believe this behaviour is or is not consistent with the theory of collusive behaviour. Explain intuitively why you think that bread prices in Edmonton were not double or triple the Canadian average during the conspiracy.

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Solution Summary

According to a Supreme Court ruling, there once was collusion among the leading bakers and food outlets in the province of Alberta. Prior to the conspiracy, bread prices in Edmonton were about equal to the Canadian average. During the period of the conspiracy, bread prices in Edmonton were 15 to 20 percent above the Canadian average.

Explain why you believe this behaviour is or is not consistent with the theory of collusive behaviour. Explain intuitively why you think that bread prices in Edmonton were not double or triple the Canadian average during the conspiracy.

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It is consistent with the theory of collusive behaviour because what we have is a claim that they were fixing the price above the equilibrium level under perfect competition. The reason why bread prices would ...

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