In at least 2 paragraphs with 7 sentences each. What is meant by “gentlemen’s agreement and what market model does it apply to? Is advertising important in this market model identified? why or why not? Why would there be a possibility of not wanting any overt or covert collusion.

In at least 2 paragraphs with 7 sentences each. What is meant by “gentlemen’s agreement and what market model does it apply to? Is advertising important in this market model identified? why or why not? Why would there be a possibility of not wanting any overt or covert collusion.

 

answer:

As in stock market one says that “word is bond”, gentleman’s agreements depicts a smiliar picture. The agreement however unenforceable by law which makes it informal is a matter of honour. it is usually verbal in nature but at times may be written or in certain cases is implict in nature. implicit by convention or through mutually benefit scenario. the crux of the agreement lies in the dignity and honour of the parties involved to fullfill the agreement made. the model usually applies in the oligoploy markets in which there are a few but large firms sellinghomogoneous or differentiated products and unlike perfect competetion they firms are price maker and hence tries to maximize their profit level. Airline industry is a great example of oligopoly market as there are a few firms offering the same travel service yet differentiate in one way or the others that is to say that the products and services offered are very close subsitutes but not perfect substitutes due to product differentiation.

in order to differentiate one’s product from another and to gain an advantage in the market the stratergy of adertsment plays a very crucial role. Advertising enables a firm in increasing their market share as it is tool used by a firm to show the superiority of its product over the other and given that there are few firms,the firms are mutually interdependent on thier rivals reaction towards its decision about prices, quantity and advertisement. Now every firm wants to maximize their profit and to do so they might end up colluding and form a cartel. cartels are not legal everywhere and hence the firms in such markets may end up in a Gentlemen’s agreement, such agreements are often made informally and are also difficult to deter and hence there exist a possibility of covert collusion or we can say that there is a possibilty of not wanting

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