The member will gain in the SR, but loss in the end

due to the destruction of the cartel by this

predetermined punishment mechanism.

If a potential cartel faces an elastic demand curve, raising price

causes revenue to fall.

Large expected penalties reduce the

expected value of forming a cartel in the first
place.

At the competitive
output, the cartel’s
marginal cost (MC)
is greater than its
marginal revenue
(MR), so it pays the
cartel to reduce its
output.

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The more complex the negotiations, the
greater the cost of creating a cartel.

as DD falls during the economic

downturn

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Bad products are overvalued and good
products are undervalued. Thus, if buyers
and sellers had symmetric information, high
quality goods are not sold if there is
asymmetric information.

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Same as Q2(b)

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 Producers of search goods: use information
advertising.

Experience goods producers: use persuasive advertising.

ce advertising
reases welfare

Only firms with good service or high quality product would have a greater incentive to advertise
as this leads to repeated sales, whereas the relatively poor service or quality firm’s advertising
leads to sales only in the current period.

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A firm may vertically integrate
backward, buying or building the
capacity to produce input.

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For example: One distributor heavily advertises a manufacturer’s
product that is also carried by another distributor. The first distributor
creates a demand for the product, which benefits both distributors, but
the second distributor incurs no cost at all. Unless something is done,
the first distributor may have little incentive to advertise, because it does
not capture the full benefits of its advertising.

Allow the good to be sold with service (sales effort)

Consumer view the relevant product as both the good and
services provided with it. Good-with-service is an entirely
different product than the good without service. Without
restrictions, the price is lower, but fewer services are provided

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Copyrights give their creator exclusive production, publication, or sales rights
to artistic, dramatic, literary, or musical works.
Trademarks are words, symbols, or other marks used to distinguish a good or
service provided by one firm from those provided by other firms.

Patent provides an inventor with

exclusive rights to a new and
useful product, process,
substance, or design.

Copyrights give their creator

exclusive production,
publication, or sales rights to
artistic, dramatic, literary, or
musical works.

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Efficiency improves especially if the privatized firm
faces competition or if substantial deregulation
occurs. Regulation may be necessary for
privatized firms that are natural monopolies
because it creates incentives for cost-cutting and
can significantly improve efficiency.

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 more explanation

- -By buying when the price would otherwise be low, and it prevented the price from falling below certain
levels.
- By buying large quantities at high prices, it created large stockpiles and exhausted available funds.
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