prices, the other oligopolists will not raise their prices, and so the firm that raised prices will lose a

considerable share of sales. For example, if the firm raises its price to $550, its sales drop to 5,000 seats sold.

Thus, if oligopolists always match price cuts by other firms in the cartel, but do not match price increases, then

none of the oligopolists will have a strong incentive to change prices, since the potential gains are minimal.

This strategy can work like a silent form of cooperation, in which the cartel successfully manages to hold down

output, increase price, and share a monopoly level of profits even without any legally enforceable agreement.

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10.2 • Oligopoly 251

FIGURE 10.5 A Kinked Demand Curve Consider a member firm in an oligopoly cartel that is supposed to produce a

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