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Sunday, 7 August 2011

Word of the Day

Cartel

A collusive agreement made by firms (or countries in the case of OPEC) to fix prices and sometimes fix output. Firms will want to collude to decrease the amount of uncertainty faced in the market. Cartels are illegal, and the government regards them as anti-competitive. Cartels can increase inefficiency in the market because it protects inefficient firms, while the efficient firms enjoy supernormal profits (watch up to 4.18 on this video, disregard the market structure and understand that supernormal profits are depicted by the shaded area on the video).

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