JINGXIAN TA14 - ECON1110 TA Section 14 Professor Jennifer...

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ECON1110 TA Section 14 Professor Jennifer Wissink TA Jingxian Zheng April 30, 2009 1 Concepts Review 1. Non-cooperative Outcome Cournot-Nash’s model and Bertrand-Nash’s model (please refer to Section Note 13) 2. Cooperative Outcome (Collusion) It means that the firms explicitly and/or implicitly cooperate in choosing a market output and the division of output between them. If the duopolists collude and divide up the market privately, they can produce the monopoly quantity and divide the monopoly economic profits. Cartel Cartels are a special case of explicit collusion.In an oligopolistic industry where there is a small number of sellers and usually involve homogeneous products. Cartel members may agree on such matters as price fixing, total industry output, market shares, allocation of customers, allocation of territories, bid rigging, establishment of common sales agencies, and the division of profits or combination of these. The aim of such collusion is to increase individual members’ profits by reducing competition. Example: OPEC a cartel of twelve oil export countries Graph 1 Unsustainability: It occurs in a cartel if the market is inherently limited (as opposed to the market remaining in existence indefinitely) while their members are better-off being part to the agreement than competing, deviating (for example by reducing one’s price) could imply capturing a big amount of the market demand and making big profits. (This intuition is the same as that in Prisoner’s Dilemma below.
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This note was uploaded on 09/19/2009 for the course ECON 101 taught by Professor Burkhauser during the Fall '08 term at Cornell University (Engineering School).

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JINGXIAN TA14 - ECON1110 TA Section 14 Professor Jennifer...

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