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This paper presents a classroom experiment in cooperative behavior. Students make production decisions as a cartel and earn revenues based on their own output decision and the output decision of the rest of the cartel. Cooperative behavior generates maximum profit for the group, but individuals have incentive to break from the group. The demonstration can be used to illustrate profit maximizing decisions for a cooperative oligopoly and for individual firms, to introduce strategic behavior and game theory, and to demonstrate the instability of cartels. The paper includes review of other papers and experiments in oligopoly behavior, a description of and instructions for the cartel experiment, analysis of results of the experiment from several classroom trials, and suggested questions and topics for classroom discussion. |
