Q O Industry MC Q1Q1 P P1P1 Industry D = AR Industry MR Profit maximizing cartel.

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Presentation transcript:

Q O Industry MC Q1Q1 P P1P1 Industry D = AR Industry MR Profit maximizing cartel

Oligopoly Collusive Oligopoly or Cartel Non-Collusive Oligopoly

OOQ (thousands) Q (millions) P Q2Q2 MC P1P1 P q1q1 q2q2 q3q3 L K AC 1 S MC MR AR = D AC 2 P1P1 P2P2 P2P2 MR 1 MR 2 T (a) The industry (b) An individual firm AC The incentive for the firm to produce more than its quota

years $ per barrel OPEC’s first quotas Oil from North sea Gulf War The OPEC A case study 1972– 1974 Second oil price rise First oil price rise

Payoff of a matrix for firm X& Y (profit in Rs: at different prices) X’s price Y’s price Rs.2Rs.1.80 Rs.2 10m each 5m for Y 12m for X Rs m for Y 5m for X 8m each AB CD The prisoner's Dilemma

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