quantity of 10,000 and sell at a price of $500. The other members of the cartel can encourage this firm to honor its

commitments by acting so that the firm faces a kinked demand curve. If the oligopolist attempts to expand output

and reduce price slightly, other firms also cut prices immediately—so if the firm expands output to 11,000, the price

per unit falls dramatically, to $300. On the other side, if the oligopoly attempts to raise its price, other firms will not

do so, so if the firm raises its price to $550, its sales decline sharply to 5,000. Thus, the members of a cartel can

discipline each other to stick to the pre-agreed levels of quantity and price through a strategy of matching all price

cuts but not matching any price increases.

Many real-world oligopolies, prodded by economic changes, legal and political pressures, and the egos of their

top executives, go through episodes of cooperation and competition. If oligopolies could sustain cooperation
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