COMM 295 Chapter 11: COMM295 - Chapter 11 - Oligopoly and Monopolistic Competition
Document Summary
Cartel forms if members believe that they can raise their pro ts by coordinating their actions. Acting on its own, a rm can maximize pro t on its own by affecting output to x their pro t only regardless of what happens to other rms. Cartel takes into account of how changes in one rms output will affect pro ts of all other members the aggregate pro t of a cartel can exceed the combined pro ts of the same. Usually see them in oligopolist markets but can sometimes see in a comp market with lots of rms i. On their own, a rm in comp. market lowers output and sees minimal change in market price, but if all similar rms lower output they will create a smaller market driving price and pro ts up. Rms must form a cartel because a comp. Rm will produce where mc = market price.
