lect10n - Collusion What we just concluded was that total...

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Unformatted text preview: Collusion What we just concluded was that total profits were lower in oligopolies than monopolies. This decrease stemmed from an externality. That is, a firm maximized its own profit not taking into account the profits of its competitor. So firms will attempt to establish agreements to increase their collective market power. As well see such agreements can result in all firms being better off. This type of behavior will be referred to as collusion. Collusion Cartel agreements are an institutional form of collusion. A leading example is OPEC but there are many others. More frequently collusion results from secret agreements, mostly because its illegal. We will model such agreements with the objective of reducing supply and or increasing prices. Though generally, collusion can also refer to advertising expenditures, setting quality standards etc. Collusion To start we will consider a simple duopoly with homogeneous products and constant marginal costs....
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lect10n - Collusion What we just concluded was that total...

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