Figure 3 - incentive for each cartel member to cheat. Of...

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Figure 1 Profit maximization by oligopolistic cartel
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Once established, cartels are difficult to maintain. The problem is that cartel members will be  tempted to cheat on their agreement to limit production. By producing more output than it has agreed  to produce, a cartel member can increase its share of the cartel's profits. Hence, there is a built-in 
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Unformatted text preview: incentive for each cartel member to cheat. Of course, if all members cheated, the cartel would cease to earn monopoly profits, and there would no longer be any incentive for firms to remain in the cartel. The cheating problem has plagued the OPEC cartel as well as other cartels and perhaps explains why so few cartels exist....
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This note was uploaded on 11/19/2011 for the course ECO 1310 taught by Professor Staff during the Fall '10 term at Texas State.

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Figure 3 - incentive for each cartel member to cheat. Of...

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