Villas-Boas- Lecture 5EEP142Page 0Cartels•More likely to occur when only a few firms => in an oligopoly•There are two kinds of oligopolies we will study:–Cooperative oligopoliesin which a small number of firms coordinate their efforts to maximize joint cartel profits –today’s lecture.–Non-cooperative oligopolies in which the firms act as rivals – next couple of lectures.•If they decide independently to behave as if they have a cartel arrangement this is called tacit collusion
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Villas-Boas- Lecture 5EEP142Page 1Cartels•Cartel members benefit from coordinating their decisions by restricting output and therefore increasing price BUT•Each cartel member has incentives to cheaton the agreement by increasing output.•Some cartels tend to break apart even without government intervention. •Are the cartels we know of the “unsuccessful” ones or the “unlucky” ones?