Q

1
Profit maximizing cartel
P
Industry MC
P1
Industry D AR
Q1
O
Q
Industry MR
2

• Oligopoly
• Collusive Oligopoly or Cartel
• Non-Collusive Oligopoly

3
The incentive for the firm to produce more than
its quota
P
P
AC
MC
T
P2
P2
MR2
MC
AC2
S
MR1
K
P1
P1
AC1
L
AR D
MR
O
O
Q (thousands)
q2
q3
q1
Q (millions)
Q2
(b) An individual firm
(a) The industry
4
per barrel
The OPEC A case study 1972 1974
80
70
Gulf War
Oil from North sea
60
OPECs first quotas
50
Second oil price rise
40
30
First oil price rise
20
10
72
74
76
78
80
82
84
86
88
90
92
years
5
Payoff of a matrix for firm X Y (profit in Rs
at different prices)
The prisoner's Dilemma
Xs price Xs price Xs price
Ys price Rs.2 Rs.1.80
Ys price Rs.2 10m each 5m for Y 12m for X
Ys price Rs.1.80 12m for Y 5m for X 8m each
A
B
C
D