Why do consumers care about whether companies in an oligopoly collude? What is your viewpoint regarding the government’s role in this?

Consumers should care if the companies in an oligopoly collude with one another because collusion can lead to a situation where consumers have to pay higher prices and/or where the goods that they can buy are of a lower quality.  My own view is that it is necessary for governments to intervene to prevent such collusion.

Economists say that competition is very important in order to have an efficient economy.  If companies have to compete...

Consumers should care if the companies in an oligopoly collude with one another because collusion can lead to a situation where consumers have to pay higher prices and/or where the goods that they can buy are of a lower quality.  My own view is that it is necessary for governments to intervene to prevent such collusion.

Economists say that competition is very important in order to have an efficient economy.  If companies have to compete with one another, they will produce the best goods possible and sell them for the lowest prices possible. If a company does not produce goods that are good enough for their price, another company will come in and outcompete them.  For example, if a hamburger shop in a town sells its hamburgers for too high of a price, another hamburger shop will open up and will make cheaper hamburgers.  In this way, competition is supposed to provide consumers with the best possible combination of price and quality.

When companies in an oligopoly collude, there is no longer true competition.  The companies are not actually trying to defeat one another.  Instead, they are cooperating so that they do not have to try as hard to reduce costs and increase quality.  Think about our two hamburger stands.  Imagine that they collude.  They decide that they will both sell their hamburgers for the exact same price. Now, they will not have to compete. They can both raise prices higher than they should be.  Alternatively, they could keep their prices the same but reduce the quality of their hamburgers. If there is no competition, there is nothing to prevent this from happening.

Because there is nothing to prevent companies from colluding, it is important for government to step in if it sees collusion happening.  Government is the only entity that can prevent collusion between companies in an oligopoly.