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From course:

Industrial Organisation 2022

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Question:

What are the effects of cartels on economic welfare

Author: Hjalmer Pedersen



Answer:

The buyers pay a higher price  consumer surplus goes to producer surplus  Dead weight loss is created also as the price is higher than marginal cost. Hence, cartels reduce overall welfare and creates inefficient allocation of resources as we produce at lower MC than price (same issue as with monopoly).


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