Managerial Economics and Strategy, 2/e

Summary

1. Cartels. If firms successfully collude, they can seek to produce the monopoly output and collectively earn the monopoly level of profit. Although their collective profits rise if all firms collude, each individual firm has an incentive to cheat on the cartel arrangement so as to raise its own profit even higher. For cartel prices to remain high, cartel members must be able to detect and prevent cheating, and noncartel firms must not be able to supply very much output. When antitrust laws or competition policies prevent firms from colluding, firms may try to merge.

2. Cournot Oligopoly. If oligopolistic firms act independently, market output and firms’ profits lie between the competitive and monopoly levels. In a Cournot model, each oligopolistic ...