Economic Application Homework: Collusion and Market Analysis

This document presents a comprehensive solution to an economics homework assignment, focusing on various aspects of economic applications. The assignment delves into business strategies, particularly those employed to increase revenue, while also addressing the ethical considerations involved, such as collusion within oligopoly markets. It analyzes the impact of price-fixing strategies, using Procter & Gamble as a case study, examining its financial performance and the benefits of integrating different business sectors. Furthermore, the solution explores the implications of unethical practices like collusion on public interest and discusses government policies for income distribution, including taxation and public expenditure. The assignment incorporates references to academic sources to support the analysis.

Running head: ECONOMIC APPLICATION
Economic application
Name of the student
Name of the university
Author note

1ECONOMIC APPLICATION
Activity: 2
Question: 1
In the current business scenario, there are various strategies being initiated by the
business organizations in order to generate more revenue from the market. However, some of
them are unethical in nature. One of the key practices being initiated by the business
organizations is the initiation of the collusion1. It refers to the unethical cooperation and
understanding among the business organizations to operate in the market. With the initiation of
the collusion, business organizations form cartels among them in order to collectively determine
the market price and to cut off the impact of the competition. Thus, when the price is being
determined by the cartels, customers are forced to buy products by that.
In the majority of cases, collusion occurs in the oligopoly market with having few players
in the market. In the case of the oligopoly market, few players in the similar product category
operate in the market and thus, it becomes easy and beneficial for them to come to an
understanding among themselves2. Collusion is being promoted by the organizations in order to
cut off the elastic nature of their products.
Question: 2
In the given table, it is being seen that, revenue, profit and profit per share have increased
till 2010. Thus, it can be concluded that, price fixing is having positive impact on their financial
performance3. The growth rate of Procter & Gamble is rapid and the given table shows that,
1 Green, Edward J., Robert C. Marshall, and Leslie M. Marx. "Tacit collusion in oligopoly." The Oxford Handbook
of International Antitrust Economics 2 (2014): 464-497.
2 Potters, Jan, and Sigrid Suetens. "Oligopoly experiments in the current millennium." Journal of Economic
Surveys 27.3 (2013): 439-460.
3 Normann, Hans-Theo, and Elaine S. Tan. "Effects of different cartel policies: evidence from the German power-
cable industry." Industrial and Corporate Change 23.4 (2013): 1037-1057.

2ECONOMIC APPLICATION
profit has grown significantly. Thus, with the initiation of the price fixing strategy, Procter &
Gamble has gained financial benefits from the market. However, the growth is fluctuating in
nature due to the reason that, the revenue for them felled in 2009 and the profit felled in 2010.
Thus, initiation of the price fixing is not having positive impact for the in the long term. Only the
profit per share has witnessed steady growth in five years. Thus, it can be concluded that, Procter
& gamble has partially benefited from the initiation of the price fixing.
Question: 3
Integrating across in different businesses in large scale is having advantage for Procter &
Gamble due to the reason that, they are having presence in different sectors and effective
alignment of these sectors will help them to coordinate more efficiently. For instance, Procter &
Gamble is having their market research operation4. Thus, effective alignment of the market
research and sales and marketing department will help them to offer the products according to
the latest market trend and requirement. Moreover, the integration of the different businesses will
also help to allocate the resources effectively according to the needs. In addition, the more will
be the large scale production, the less will be the average costs and thus Procter & Gamble will
gain economies of scale in their business5.
Question: 4
4 Van Der Aalst, Wil MP. "Business process management: a comprehensive survey." ISRN Software
Engineering 2013 (2013).
5 Laursen, Keld. "Revealed comparative advantage and the alternatives as measures of international
specialization." Eurasian Business Review 5.1 (2015): 99-115.

3ECONOMIC APPLICATION
As given in the case study, it is being told that, Procter & Gamble along with their key
competitors are being fined for the initiation of the collusion. Collision refers to the unethical and
illegal formation of understanding between the organizations. Thus, initiation of the unethical
and illegal cooperation will obviously be against the public interest. Moreover, the key motive of
initiation of the collision is to promote the price at their will. Thus, the evidence of paying fine is
enough to conclude that Procter & Gamble is working against the public interest.
Question: 5
There are various policies being available for government for equal distribution of
income.
 Initiation of taxation policies will help to equally distribute income by taxing more for
top of the pyramid and taxing less for the bottom of the pyramid6.
 Government can invest more in public expenditure in order to generate more income
opportunities.
 Providing of public services and goods will also help in equal distribution of the income.
This is due to the reason that, providing basic necessities at low cost or free to the lower
class people will help the government to empower them.
 Initiation of the public sector enterprise will also help the government to have equal
distribution of the income. The key motive behind setting up public sector enterprises is
to empower the society rather than maximizing the profit. Thus, it will help to enhance
the rate of employment in the society.
6 Bourguignon, Francois, William H. Branson, and Jaime De Melo. "Adjustment and income distribution: A micro-
macro model for counterfactual analysis." Modeling Developing Countries' Policies in General Equilibrium. 2015.
117-139.

4ECONOMIC APPLICATION
Reference
Bourguignon, Francois, William H. Branson, and Jaime De Melo. "Adjustment and income
distribution: A micro-macro model for counterfactual analysis." Modeling Developing Countries'
Policies in General Equilibrium. 2015. 117-139.
Green, Edward J., Robert C. Marshall, and Leslie M. Marx. "Tacit collusion in oligopoly." The
Oxford Handbook of International Antitrust Economics 2 (2014): 464-497.
Laursen, Keld. "Revealed comparative advantage and the alternatives as measures of
international specialization." Eurasian Business Review 5.1 (2015): 99-115.
Normann, Hans-Theo, and Elaine S. Tan. "Effects of different cartel policies: evidence from the
German power-cable industry." Industrial and Corporate Change 23.4 (2013): 1037-1057.
Potters, Jan, and Sigrid Suetens. "Oligopoly experiments in the current millennium." Journal of
Economic Surveys 27.3 (2013): 439-460.
Van Der Aalst, Wil MP. "Business process management: a comprehensive survey." ISRN
Software Engineering 2013 (2013).