ECON 10010 Chapter Notes - Chapter 17: Resale Price Maintenance, Predatory Pricing, Nash Equilibrium
Document Summary
Cartel: group of firms acting in unison in a collusion. Market feels the effects of a monopoly market. The cartel would decide on an outcome that maximizes the total profit and how to split production. Outcome is socially inefficient: the equilibrium for an oligopoly. If the duopolists individually pursue their own self-interest when deciding how much to produce: Total quantity produced is greater than the monopoly quantity. Output > price = owner increases production. Price approaches mc and q produced approaches the socially efficient level. Countries chose to have more arms than the other, yet want a world without arms. Each country chooses to continue the arms race, resulting in the inferior outcome with both countries at risk: common resources: Can be bad for both society and the cartel: maintaining monopoly profits. Lack of cooperation is desirable from society"s standpoint. Monopoly outcome is good for the cartel and bad for consumers.