With Reference to an Industry of Your Choice, Identify a Real-World Example of Firms Formally or Tacitly Engaging in Collusion, Taking Care to Fully Explain the Nature of the Collusive Conduct. Using the Economic Theory

2. With reference to an industry of your choice, identify a real-world example of firms formally or tacitly engaging in collusion, taking care to fully explain the nature of the collusive conduct. Using the economic theory presented in class, analyse the drivers of collusion in your chosen case. Also, critically evaluate the effects of an eradication of collusion – which would strengthen the competition between these industry rivals – on both the welfare of consumers and the financial performance of the firms themselves.

In 2002, according to publications by the Toy Industries of Europe (2003), the UK was the largest consumer of toys and games in the EU with a 24.2% share of the €12.7bn market. That equates to over €3bn spent on toys each year in the UK. However, despite these figures, the toy and gaming industry was facing difficulties in Western Europe with child population numbers on the decrease and the tendency for children to mature more quickly, meaning their propensity to use toys and games was diminishing at an earlier age (Keynote, 2002). These two factors combined to mean that the target market for toy and game makers was decreasing rapidly.
However, as disposable income rose, so did the average spent on toys per child to a staggering €173 per year. The market for higher end children’s toys with increasing electronic complexities was dramatically on the rise, partially as a result of increasing incomes and also because of what Mintel (2003) describes as the “pester power factor” – children becoming better at persuading their parents to buy the things they want. This was coupled with a rise in demand for low-budget toys/collectables (e.g. tradable cards/stickers) from the ever-increasing market of children spending their own money – the “pocket money power factor”. These trends created a landscape in which firms would have to battle incredibly hard to continue making profits.
The toy and games industry was split into three basic segments:

References: BBC News (2002) Inquiry into toy ‘price fixing’. Available at: http://news.bbc.co.uk/1/hi/business/1962341.stm Church, J Clarke, R. & Morgan, E. J., (2006), New Developments in UK and EU Competition Policy. Cheltenham: Edward Elgar. Keynote (2002) Toys & Games Market Report 2002 Martin, S., (2010), Industrial Organization in Context. Oxford: University Press. McGuigan, J. R. & Moyer, R. C., (1993) Managerial Economics. (6th ed.). Minneapolis: West. Mintel (2003) Toys & Games – UK – July 2003. Available at: http://academic.mintel.com.ezp1.bath.ac.uk/display/21351/ Morgan, E Mulhearn, C., Vane, H. R., & Eden, J., (2001), Economics for Business. New York: Palgrave. Shy, O., (1995), Industrial Organization: Theory and Applications. London: MIT Press. The Office of Fair Trading (2003) Hasbro UK Ltd/Argos Ltd/Littlewoods Ltd. Available at: http://www.oft.gov.uk/OFTwork/competition-act-and-cartels/ca98/decisions/argos#.UVWsSr_ePzI The Office of Fair Trading (2003) Hasbro UK Ltd/Argos Ltd/Littlewoods Ltd Toy Industries of Europe (2003) TIE Facts and Figures 2003. Available at: http://www.tietoy.org/publications/ Treanor, J., (2004) Monopoly: a game of price fixing, The Guardian Waldman, D. E. & Jensen, E.J., (2012) Industrial Organization: Theory and Practice. (4th ed.). New Jersey: Pearson Prentice Hall Waterson, M., (1984), Economic Theory of the industry, Cambridge: University Press