Collusion in the market of premium ice cream

This is an absolutely fascinating podcast episode by Planet Money about the way Ben & Jerry’s and Häagen-Dazs are quite consciously making decisions about the different flavours of ice cream they produce. It turns out that as these firms are much interdependent – a key characteristic of any oligopoly – their actions influence each other and they act strategically in order to maximize profits. In the US premium ice cream market this means that Häagen-Dazs sticks with the “smooth, creamy flavours” while Ben & Jerry’s goes after “chunky combinations”.

While there is no evidence of any formal collusion (firms secretly agreeing on charging a high price or lower quantities or in any other way limit competition in order to maximize joint profits), which is illegal, it is quite likely that the two companies have been engaged in tacit collusion (a.k.a. informal collusion). In the old IB Economics syllabus the term is defined as “price leadership by a dominant firm” (so this is what you should stick with under exam conditions) but in the case of Ben & Jerry’s and Häagen-Dazs it is more about “subtle signals” to the other party instead of a formal agreement.

All in all, it turned out that by each firm sticking with their own territory, they could keep prices high, yielding large amounts of profits, which is the exact goal in any type of collusion.

IB Economics Internal Assessment (IA) Commentary

This is a fantastic podcast about a very interersting topic related to the IB Economics syllabus. However, being a podcast, beware that this is not suitable for an IB Economics internal assessment source.

Source of image: Amanda Aronczyk/NPR

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