Page 700 - Krugmans Economics for AP Text Book_Neat

2. List four factors that make it difficult for firms to form a cartel.
Answer (6 points)
Explain each.
1 point: The fact that universities offer a small number of products—enrollment
into a small number of programs—invites tacit collusion. They may also have
similar perceptions of fairness.
1 point: Factors that work against tacit collusion in the market for higher
education include the large number of universities and the bargaining power of
the better applicants.
1 point: Universities could engage in illegal collusion by holding meetings to
establish uniform tuition rates, divvying up applicants so that each is accepted
by a limited number of schools (to avoid competition), or sharing information on
scholarship offerings so that applicants will receive similar offers from the
competing schools.
1 point: Universities seek product differentiation in regard to athletic programs,
facilities, academic standards, location, overseas programs, faculty, graduation
requirements, and class size, among other areas.
1 point: Price leadership could be achieved in the university setting if one
school, perhaps a large or prestigious university, announced its tuition early and
then other schools based their tuition on that announcement.
1 point: Universities can engage in nonprice competition by offering better
food, bigger dorm rooms, more accomplished faculty members, plush student
centers, and similar amenities.

658 section 12 Market Structures: Imperfect Competition