Tuesday, January 12, 2010
Collective Action In Business Market
In a perfectly competitive market where there exists a competition between all the firms there exists no economic profits.The firms can collude and collectively fix the price in the market so that they all can benefit from the higher prices. But this scenario is rarely seen . The firms rarely come together to sell a product .This is attributed to the fact that the firms also aim at selling the maximum to gain maximum. So in the collusion their this interest gets defeated as all the benefits are shared. So again here the self interest comes over the collective action.
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It would trigger a monopolistic situation if everyone comes together and start selling a product and capture the market. Then there wouldn't be any incentive left for innovation and improvement in the products. Moreover companies collaborate only if the they can get higher profits than earlier and dissolve some uncertainties in the environment. So maximizing profit only brings them together and not just for theory of co-operative.
Collaborative network between organizations occur in a cooperative environment. But in a competitive environment, organizations try to minimize their dependence on other organizations for supply of scarce resources. In case of cartel formation, there is a higher incentive for the defector who considers unilateral non-cooperation for attaining maximum benefits, thus leading to universal non-cooperation through breaking of cartel.
Ideally each firm would like cooperation to be present among every firm; with it being the sole entity breaking it, albeit surreptitiously (unilateral noncooperation). With the action of the first firm becoming known however everyone would follow suit. Any firm which chooses to cooperate unilaterally then will face the outcome of being exploited and thus forced to shut down. Ultimately cooperation will break off as the individual self preserving interest of each firm will hold sway.
cooperation amongst players in market creates a monopoly. there certainly exists benifits for any one to break it. However the catch is to make it so strong that the benifit to members of cartel is sufficient enough to remain part of it, inspite of the existense of defactors. the best example in OPEC, which is very successeful and is going on for more than two decades successfully mainpulating crude oil prices
Collective Action is hard to materialize here because of policies of a welfare state (like anti-trust) as such collaboration would raise prices and put the jobs of employees under uncertainty. This would not be in the best interest of the other groups affected by this deal – workers and consumers and could lead to counter collective action which would destabilize the system. The employees are also the consumers, but as it is difficult to gather individual units spread across geography, worker resistances are more commonly seen, but the danger of a consumer movement always persists because of the underlying agitation.
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