Question

. If you were an oligopolist and from only an economic standpoint would you want to act as a cartel? Why?

Answer 1

As we know that an Oligopoly is a market structure, when there are few firms or sellers in the market selling or producing a differentiated and homogeneous products. In other words, when there are twoor more than two, but not many producers or sellers of a product, Oligopoly is said to exist. The simplest case of oligoploy is Duopoly which prevails when there are only two producers or sellers of a product.

Collusive Oligoply is an important form of Cartel. Cartel means an association of manufacturers or suppliers with the purpose of maintaining prices at a high level and restricting competition. A cartel is defined as a group of firms that gets together to make output and price decisions.The organization of petroleum‐exporting countries (OPEC) is perhaps the best‐known example of an international cartel; OPEC members meet regularly to decide how much oil each member of the cartel will be allowed to produce. As an oligopolist i would like to form cartel due to the reasons that:-

In cartels their is assurance of profits. The firms by making cartel share the profits and losses equaly. Since prices charged by cartels are more than the cost of producing and distribution, members are assured of a reasonable profit margin.

By adopting the cartel the firms enjoy a monoploy power in the market. They can influnce the market price and output as per this power.

The cartel helps in increasing the production efficiency. The firms are always striving for more efficiency.

When the firms forms the cartel, they will definetly be able to cope up with the fluctuations of business cycles.

Forming an cartel as an oligopolist will benefit me as well.

Hope you got the answer.

Thanks!