Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 5 Firm Behavior and the Organization of Industry

Chapter 17 of 36 Oligopoly    

Section 16 of 24

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Figure 8 from Chapter 15 here

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Restated from Chapter 1, the Ten Principles of Economics:

1: people face trade-offs

2: the cost of something is what you give up to get it

3: rational people think at the margin

4: people respond to incentives

5: trade can make everyone better off

6: markets are usually a good way to organize economic activity

7: governments can sometimes improve market outcomes

8: a country's standard of living depends on its ability to produce goods and services

9: prices rise when the government issues too much money

10: society faces a short-run trade-off between inflation and unemployment

…

One of the ten principles of economics, #7: governments can sometimes improve market outcomes.

Cooperation among oligopolists is undesirable from the standpoint of society as a whole.

It leads to too low production quantity and too high prices.

Per Figure 8 from Chapter 15, oligopolies which act as monopolies create deadweight loss areas C and P, both consumers and producers lose potential gain.

To move the allocation of resources closer to the socially efficient outcome price and quantity policymakers try to induce firms in an oligopoly to compete rather than cooperate.

…

One way government policy discourages cooperation is through laws.

The Sherman Antitrust Act of 1890 elevated agreements among oligopolists  from an unenforceable contract to a criminal conspiracy.

From text of this law:

· every contract in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal

· every person who shall attempt to monopolize any part of the trade or commerce shall be deemed guilty of a misdemeanor

…

The Clayton Act of 1914 further strengthened antitrust law.

Included is a provision stating if a person could prove he was damaged by an illegal arrangement to restrain trade that person could sue and receive three times the damages he sustained.

The purpose of the triple damages rule was to encourage private lawsuits against conspiring oligopolists.

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