Contingent factors that helped and allowed for collusion.
One of the most obvious factors facilitating the lysine collusion was the number of the companies operating on this market. As we already told there were only 5 major players on lysine market. The small number of firms allowed them to negotiate and reach to an agreement much easier than if it would be a competitive market with many firms. Furthermore it was easier to coordinate their activities and to adjust their strategies according to the market. It is hard to believe that one firm could reduce substantially the price and get away with it as it would have a strong negative impact on the profit of the other players.
The market structure was appropriate for establishing collusion as well. The firms controlled sufficient size of the market and had the power to influence the price level. Some empirical evidences suggest that the concentration ratio …show more content…
As a chemical product, Lysine has no substantial differentiation. In addition, Lysine had no competitive substitute. The only alternative to the product is a mix between corn and Soybean meal, however this combination was way more expensive, giving Lysine a relatively high ceiling price.
Further, Lysine is a minor ingredient that is added in other more complex products and it has relatively inelastic demand. This means that large changes in price will result in small changes in quantity, in other words, the firms had incentives to collude and manipulate the market price without significantly reducing their output quantity.
Moreover, the slow rate of technological advancement kept the demand fluctuation low. During the period of collusion the demand was growing in a steady rate. This positive rate facilitated the establishment of collusion as firms were much more likely to reach to an agreement in a market with consistent growing trend and predictable future
One of the most obvious factors facilitating the lysine collusion was the number of the companies operating on this market. As we already told there were only 5 major players on lysine market. The small number of firms allowed them to negotiate and reach to an agreement much easier than if it would be a competitive market with many firms. Furthermore it was easier to coordinate their activities and to adjust their strategies according to the market. It is hard to believe that one firm could reduce substantially the price and get away with it as it would have a strong negative impact on the profit of the other players.
The market structure was appropriate for establishing collusion as well. The firms controlled sufficient size of the market and had the power to influence the price level. Some empirical evidences suggest that the concentration ratio …show more content…
As a chemical product, Lysine has no substantial differentiation. In addition, Lysine had no competitive substitute. The only alternative to the product is a mix between corn and Soybean meal, however this combination was way more expensive, giving Lysine a relatively high ceiling price.
Further, Lysine is a minor ingredient that is added in other more complex products and it has relatively inelastic demand. This means that large changes in price will result in small changes in quantity, in other words, the firms had incentives to collude and manipulate the market price without significantly reducing their output quantity.
Moreover, the slow rate of technological advancement kept the demand fluctuation low. During the period of collusion the demand was growing in a steady rate. This positive rate facilitated the establishment of collusion as firms were much more likely to reach to an agreement in a market with consistent growing trend and predictable future