Country Cartels

25 Pages Posted: 13 Oct 2014

See all articles by Dan Bernhardt

Dan Bernhardt

University of Illinois at Urbana-Champaign - Department of Economics

Mahdi Rastad

Orfalea College of Business, California State Polytechnic University

Date Written: June 1, 2014

Abstract

We analyze collusion under demand uncertainty by cartels such as OPEC that care about the utility derived from profits by citizens. When citizens are sufficiently risk averse and fixed operating costs are non-trivial, it becomes difficult for cartels to collusively restrict output both when demand is low and marginal dollars are highly-valued, and when demand is high and potential defection profits are high: output relative to monopoly levels becomes a U-shaped function of demand. Greater risk aversion or higher fixed operating costs make collusion more difficult to support in recessions, but easier in booms.

Keywords: Collusion, Oligopoly, Risk Aversion, International Oligopolies, OPEC

JEL Classification: D43, L13, L21, C73, L11

Suggested Citation

Bernhardt, Dan and Rastad, Mahdi, Country Cartels (June 1, 2014). Available at SSRN: https://ssrn.com/abstract=2508797 or http://dx.doi.org/10.2139/ssrn.2508797

Dan Bernhardt (Contact Author)

University of Illinois at Urbana-Champaign - Department of Economics ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-244-5708 (Phone)

Mahdi Rastad

Orfalea College of Business, California State Polytechnic University ( email )

San Luis Obispo, CA 93407
United States

HOME PAGE: http://www.cob.calpoly.edu/faculty/mahdi-rastad/

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