Improving understanding of collusion in intermediate microeconomics

Evan Moore ()
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Evan Moore: Auburn University at Montgomery

International Review of Economic Education, 2011, vol. 10, issue 1, 3-13

Abstract: Standard treatments of collusion in intermediate microeconomics textbooks frequently involve a Cournot duopoly facing linear demand with constant marginal costs of production. These presentations leave students with the misunderstanding that firms jointly behaving like a single-firm monopolist and profit maximising collusion are one and the same. We present a simple and effective way for improving student comprehension of collusion; this exercise results in collusion where the duopolists produce more total output than that of a monopolist while enjoying greater joint profits. The exercise can be used to clarify and lead to a better understanding of collusion and profit maximisation.

Date: 2011
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