EC270 Chapter Notes - Chapter 10: Economic Surplus, Best Response, Marginal Cost
Document Summary
Oligopoly a market with a small number of firms. There is a high entry barrier that managers erect using their cooperative market power. Conditions in oligopolistic industries tend to encourage cooperation among rival managers. This can increase profit, decrease uncertainty, and raise barriers to discourage others from entering the market. Cartel when a collusive arrangement is made openly and formally. Price maximizes the profit earned by the cartel, but it says nothing about how this profit is divided among cartel managers. Cartel managers determine the distribution of sales across members; this is the process that makes cartels unstable. Cartel managers can increase corporate profit by reallocating output among members to reduce the cost of producing the cartel"s total output. Managers who break away from a cartel or secretly cheat can increase profit as long as rival managers do not do the same thing and the cartel does not punish this behaviour.
