14- mavzu: Raqobat va yakkahokimlik

15.2 Collusion and Cartels³
The uncertainties of pricing decisions are substantial in oligopoly, so the implications of misjudging the behavior of competitors could prove to be disastrous. Because of this uncertainty, some believe that oligopolists change their prices less frequently than perfect competitors, whose prices may change almost continuously. The empirical evidence, however, does not clearly indicate that prices are in fact always slow to change in oligopoly situations.
Because the actions and profits of oligopolists are so dominated by mutual interdependence, the temptation is great for firms to collude--to get together and agree to act jointly in pricing and other matters. If firms believe they can increase their prices by coordinating their actions, they will be tempted to collude. Collusion reduces uncertainty and increases the potential for monopoly profits. Unfortunately, from society’s point of view, collusion tends to create a situation in which goods very likely become overpriced and underproduced, with consumers losing out from a misallocation of resources.
Agreements between or among firms on sale, pricing, and other decisions are called cartel agreement. A Cartel is a collection of firms making such an agreement.
Cartels may lead to joint profit maximization, which requires the determination of price on the basis of the marginal revenue function derived from the total (or market) demand schedule for the product and the marginal cost schedules of the various firms.
Equilibrium quantity and price for a collusive oligopoly are determined according to the intersection of the marginal revenue curve derived from the market demand curve and the horizontal sum of the short-run marginal cost curves for the oligopolists.
Exhibit 1: Collusion in Oligopoly
The manner in which total profits are shared among firms in the industry depends in part upon the relative costs and sales of the various firms. Firms with low costs and large supply capability will obtain larger profits, because they have greater bargaining power. With outright collusion, firms may agree upon market shares and the division of profits. The division of total profits will depend upon the relative bargaining strength of the firms, influenced by relative financial strength, ability to inflict damage (through price wars) on other firms if an agreement is not reached, ability to withstand similar action on the part of other firms, relative costs, consumer preferences, and bargaining skills.
Fortunately, most strong collusive oligopolies are rather short lived, for two reasons. First, in the United States and in some other nations, collusive oligopolies are strictly illegal under antitrust laws. Second, for collusion to work, firms must agree to restrict output to a level that will support the profit‑maximizing price. At that price, firms can earn positive economic profits. Yet there is a great temptation for firms to cheat on the agreement of the collusive oligopoly, and because collusive agreements are illegal, the other parties have no way to punish the offender.
Why do oligopolists have a strong incentive to cheat on a cartel? Because any individual firm could lower its price slightly and increase sales and profits, as long as it is undetected. Undetected price cuts could bring in new customers, including rivals’ customers. In addition, there are non-price forms of defection.
Global Watch: The OPEC Cartel (Exhibit 2)
In the News: The Crash of an Airline Collusion

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2^ Robert L/Sexton
14.3 Monopolistic Competition Versus Perfect Competition

3^ Robert L/Sexton
14.3 Monopolistic Competition Versus Perfect Competition