Why does it often make sense to use the dominant firm model when analyzing carte

Question

Why does it often make sense to use the dominant firm model when analyzing cartel pricing? O A. Cartels usually have one very large producer along with a number of smaller producers. The large producer is therefore like a dominant firm, and the smaller cartel members are like fringe firms O B. In most cartels, one producer dominates decisions about price and quantity while other producers accept the dominant firm's decisions ( C. A cartel usually accounts for only a portion of total production and must take into account the amount supplied by noncartel producers. The cartel is therefore like a dominant firm, and the noncartel producers are like fringe firms. None of the above. 0 D.

Explanation / Answer

C

The dominant firm model is the model that in some oligopolistic markets, one large firm has a major share of total sales, and a group of smaller firms supplies
the remainder of the market. The large firm has power to set a price that maximizes its own profits. This happens in case of a Cartel where some oligopolistic firms decide to collude to maintain high prices and avoid competition. The Cartel itself thus is the large firm.

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