372PART FIVEFIRM BEHAVIOR AND THE ORGANIZATION OF INDUSTRYoligopoly and how cooperative the firms are. The story of the prisoners’ dilemmashows why oligopolies can fail to maintain cooperation, even when cooperation isin their best interest.Policymakers regulate the behavior of oligopolists through the antitrust laws.The proper scope of these laws is the subject of ongoing controversy. Althoughprice fixing among competing firms clearly reduces economic welfare and shouldbe illegal, some business practices that appear to reduce competition may have le-gitimate if subtle purposes. As a result, policymakers need to be careful when theyuse the substantial powers of the antitrust laws to place limits on firm behavior.◆Oligopolists maximize their total profits by forming acartel and acting like a monopolist. Yet, if oligopolistsmake decisions about production levels individually, theresult is a greater quantity and a lower price than underthe monopoly outcome. The larger the number of firms
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