Abstract
The paper considers a model of duopoly market consisting of identical firms. Each firm produces a single product using a single input. The input is supplied by a monopolistic firm in input market. Horizontal cartel is defined as collusion between two output producing firms where as Vertical cartel represents a situation where each firm in output market colludes with the input manufacturer. The deal is to get the input at the competitive price and, in return, adequately compensate the input manufacturer for the loss incurred in selling the factor at a much lower price. The analysis finds that while there are sufficient conditions for horizontal cartel to be profitable compared to competition, such condition is hard to found out for vertical cartel. Finally it is observed that in some situations horizontal cartel may lead to higher social welfare while in case of vertical cartel, if profitable, always results in higher social welfare.
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