When all firms in an industry are charging the same price it could indicate the absence of competition and the presence of price-setting agreements. However, this decision is dependent on two conditions. Foremost the timing of the similar prices and secondly the market structure in question-based on the product or service being offered by the firms. Prices charged by firms represent an amalgam of several elements including marginal costs and profit margins (Fudenberg, & Tirole, 2013). As such, unless firms have equal marginal costs and profit margins, their prices will differ. If firms that were initially charging different prices simultaneously start charging a common price then the presence of a price-setting agreement exists and competition is eliminated.
Secondly, firms in an oligopoly market structure will tend to charge similar prices since they deal with homogenous products. Often these firms have similar suppliers and use similar methods of production (Alipranti, Milliou & Petrakis, 2014). The only discrepancy in terms of costs comes in product differentiation and promotion. The former entails fancy packaging as is the case with beer companies. The most common type of product promotion is advertisements and these are fairly costly. Therefore, depending on these two factors prices may vary slightly. Oligopoly firms participate in two types of competition; price and quantity. As such, the absence of price competition does not necessarily mean the absence of competition. The petroleum producing nations, for instance, competed for a long time under quantity competition until the formation of the Organisation of Petroleum Exporting Countries (OPEC) which controls the quantity of oil produced by nations under the accord (Amadeo, 2014).
The above scenario is synonymous with oligopoly firms in the petroleum, automobile, cigarette, and beer industries. The key elements that permit these firms to charge the same prices include similar costs of production, a kinked demand curve, and the presence of large competitors controlling a sizeable share of the market.
Alipranti, M., Milliou, C., & Petrakis, E. (2014). Price vs. quantity competition in a vertically related market. Economics Letters, 124(1), 122-126.
Amadeo, K. (2018, December 27). 3 Top Goals of OPEC. Retrieved from https://www.thebalance.com/what-is-opec-its-members-and-history-3305872
Fudenberg, D., & Tirole, J. (2013). Dynamic models of oligopoly. Routledge.