IGCSE Economics CIE Section 2 – The Allocation Of Resources Practice Test

When competitors agree to set the same price for a product, they’re engaging in price fixing. This is a direct attempt to remove price competition and keep prices at a level they choose together, rather than letting the market determine them. It can be done through explicit agreements or through informal understandings, and it’s considered anti-competitive and illegal in many places because it harms consumers by keeping prices higher than they would be in a competitive market. Price discrimination, in contrast, involves charging different prices to different buyers based on willingness to pay, not agreeing on one shared price. Market sharing is about dividing up markets—such as by geography or customer type—so each firm sells in its own segment, which may involve different pricing strategies but is about allocation of markets, not fixing a single price across firms. Collusion is the broader idea of firms cooperating to influence outcomes, with price fixing being a specific form of collusion.