An Agreement Between Two Duopolists To Function

A distinctive feature of an oligopolistic industry is the relationship of tension between companies in a market to produce quantities or calculate prices if companies have agreements on the quantity to produce and the price to sell the production, we refer to their form of organization as game theory suggests that cartels are inherently unstable. , because the behavior of cartel members is a prisoner dilemma. Any cartel member would be able to make a higher profit, at least in the short term, by breaking the agreement (a larger quantity produced or sold at a lower price) than it would under the agreement. However, if the agreement collapses due to defections, companies will return to competition, profits would decline and things would be worse. 34. An agreement between two duopolists to act as a monopolist usually collapses because a cartel is an agreement between competing companies to meet for higher profits. Agreements generally occur in an oligopolistic industry where the number of sellers is low and the products marketed are homogeneous. Cartel members can agree on price fixing, total industry production, market share, customer distribution, allocation of territories, supply manipulation, creation of common distribution agencies and profit sharing. b. he referred to the fundamental difficulties of maintaining cooperation agreements. Use the LINKS and RIGHT arrow keys to navigate between tabs; c.

The strategic decisions faced by prisoners are identical to those of companies that enter into competition agreements. The merger occurs when large companies count themselves and merge into a large company, eliminating competition (Kamien and Schwartz 54). The difference between olig… Bertrand Duopoly: The diagram shows the reaction function of a company that competes for the price. If P2 (the price set by company 2) is lower than marginal costs, enterprise 1 in marginal prices (P1-MC). If Firm 2 price above MC, but below monopoly prices, company prices 1 just below company 2.