Slide 1

Cartel Theory of Oligopoly

Definition A cartel is defined as a group of firms that gets together to make output and price decisions. Price Determination Cartel controls the price and supply of the product and supervise and monitor the entry of any other new competitor firm.Agreement between Cartel Members Members agree on setting target prices , reducing the total output level.Allocation of Market Share They fix the market share associated with every firm in terms of customers and territory.

Comparison with Monopoly As compared to monopoly cartel has less hold on the market.Advertisement Cost and Product Differentiation Cartel members alter the conditions of products for attracting maximum customers. Large amount of money is being spent on advertisement of products and services.Graphically