Cambridge International as and a level Economics Ebook

Figure 7.18 
China’s automobile market
Sources
: the companies; China Association of Automobile 
Manufacturers
Seeking Traction
TOTAL SALES
China’s automobile market
MARKET SHARE
2012 2013
Through
November
Volkswagen
*
Hyndai
†
Nissan
Ford
Toyota
Great Wall
Honda
Geely
GM
0
5
10
15
20
million cars
*Through October †Includes Kia
The Wall Street Journal
16%
14
12
10
8
6
4
2
0
2012
2013 (Through November)
Price leadership: 
a situation in a market whereby a 
particular firm has the power to change prices, the result of 
which is that competitors follow this lead.
Cartel: 
a formal agreement between firms to limit 
competition by limiting output or fixing prices.
KEY TERMS
Horizontal integration: 
where a firm grows through a 
merger or acquisition of another firm in the same sector of 
an industry.
KEY TERM
169
Chapter 7: The price system and the microeconomy 

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Collusion is more likely to be tacit where the behaviour 
of each fi rm is the result of an unwritten rather than 
formal agreement. As noted above, one of the simplest 
forms is a follow-the-leader agreement, where each fi rm 
will only adjust its price following a move by the dominant 
fi rm. Th
ere are other price leadership models, such as 
using a typical fi rm as the yardstick for price. Th
is will 
only change if a rise in costs aff ects the profi t margin. Th
e 
principle is the same: each fi rm will act in the same way in 
the interests of the group as a whole.
In practice, it is diffi
cult to identify either tacit or 
formal agreements. Th
is is because price similarities can 
be the result of either aggressive pricing in a competitive 
oligopoly or the outcome of a collusive agreement. Th
is 
makes investigations into anti-competitive behaviour by 
organisations such as the UK’s new (2014) Competition and 
Markets Authority diffi
cult and invariably inconclusive.