IB Economics Higher Level (HL) Practice Exam

In a non-collusive oligopoly, firms operate independently without formal agreements or collusion to influence market prices or output levels. Sustaining high prices without agreements reflects this behavior, as firms may recognize that maintaining high prices is mutually beneficial without needing to coordinate or collaborate formally. Each firm understands that if they lower their prices, competitors may not follow suit, leading to potential losses in revenue.

This environment fosters a scenario where firms are aware of their interdependence, leading them to make strategic decisions aimed at sustaining higher prices based on their own cost structures and competitive pressures rather than through explicit agreements or collusion. Such a situation often occurs when firms are cautious of price wars and aim to maintain profitability while watching competitors' actions.

In contrast, the other choices involve coordinated behavior, which characterizes collusive practices. Joint price setting, fixing output levels, and forming alliances clearly indicate a level of cooperation among firms that goes against the principles of non-collusive competition where firms act independently.