Question

Assume the four major grocery stores in a large metropolitan area decide to meet secretly to fix prices for meat. It would be easiest to maintain this arrangement when:

Answer 1

The correct answer is Option (3): The number of additional competitors is very small.

Step-by-step explanation:

Competitors can come together to engage in price fixing, which is either a verbal or written agreement between the firms to either raise, lower or maintain prices of products at a given time. Some government laws encourage firms to set their own prices by themselves without any form of agreement with another firm in the same or similar line of business. Sometimes, these competitors can fix prices of goods in secret and these government bodies do term the act illegal.

These price fixing activities are usually being carried out effectively “in secrete” when other competitors are very small.