SESSION - 18

IMPERFECT COMPETITION
Presented By : Sivakumar P

Cartel Formation

Cartels are formed when competing oligopolists enter into some kind of an agreement in order to maximize joint profit. There are two types of cartels

Cartels aiming at joint profit maximization Cartels aiming at the sharing of the market

Cartels aiming at joint profit maximization

Direct agreement with the aim of reducing uncertainty arising form their mutual interdependence. Aim to maximize the joint profit.

Market Sharing Cartels

Firms agree to share market but keep a considerable degree of freedom concerning the style of their output, their selling activities and other decisions. There are two method:

Non-price competition agreements Sharing of the market by agreement on quotas

Price Leadership

Price Leadership

It is a form of collusive oligopoly market One firm sets the price and the other firms follow it. Price leadership is of three types:

Price leadership by a low cost firm Price leadership by a large (dominant) firm Barometric price leadership

MC1
P1

MC

AR1 = AR MR1 = MR

O
M1 M

DOMINANT FIRM

A firm with big market share Market demand & supply of other firms are known to dominant firm The firm supply the difference between total demand & total supply of small firms

D P

S MC

P1

A1

B1

P2 D1 D Q MR