I don't understand what the sentence "if producers exchange information on their price intentions it is a way of allowing price leadership, a form of tacit collusion, to continue". This is an example of an agreement to exchange information that could have the effect of reducing competition between firms. I think it's "price leadership" that I don't understand. Any explanation would be greatly appreciated. Thanks!
Price leadership just means that one firm (the "price leader", which is often the largest firm) sets its price for a product and then the other firms (the "followers") charge the same price for their products. More generally, if there is a group of large firms in an oligopoly (eg supermarkets, utility companies) and no single dominant leader firm, then the firms may match (ie copy) each other's prices. If this is the case, then it is less likely that any firm will drop its prices, as the other firms are likely to follow suit and they're all likely to make lower profits. However, prices rises are more likely to be followed / matched by other firms. So, overall prices are likely to be higher then if the firms instead competed, which is to the detriment of consumers. Such price leadership by a single firm or price matching amongst a group of firms (its actually called "shadow pricing" at the bottom of page 186) is more likely to occur where the firms each know the prices charged by all the other firms. So one way to make this the case, and hence to increase their profits, is by actually agreeing to exchange information on prices and maybe also other things such as costs and product ranges. Hence, if the government thinks this is happening and leading to higher prices, then it might intervene and make it illegal.
