Imperfect Cartel

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When some firms of a cartel cheat and produce more than their allocated quota, cartels fail to maximize their profit or surplus, while consumers benefit. Similar effects appear when more fringe (or noncartel) firms exist in a market, which is called an "imperfect cartel". Consequently, the cartel firms would welcome more fringe firms to join their cartel. On the other hand, when some firms have joined the cartel, other fringe firms would prefer to stay out: they can increase their production because of higher prices due to the cartel.
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Contributed by: Christos Papahristodoulou (January 2014)
(Mälardalen University, Sweden)
Open content licensed under CC BY-NC-SA
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Reference
[1] D. Carlton and J. Perloff, Modern Industrial Organization, 4th int. ed., Pearson Addison–Wesley, 2005.
Permanent Citation
"Imperfect Cartel"
http://demonstrations.wolfram.com/ImperfectCartel/
Wolfram Demonstrations Project
Published: January 10 2014