Question

A movie exhibitor, Mr. Mark Twain Routt, owns movie theaters in two New Jersey towns of roughly the same size, and they are fifty miles apart. In Sayerville he owns the only chain of theaters; in Clifton there is no theater chain, and he is but one of a number of independent operators.

Would you expect movie prices to be higher in Sayerville than in Clifton in the short-run?   

What is the difference between a cartel and a price leadership market structure ?

Answer 1

Yes, movie prices will be higher in Sayerville than in Clifton in the short-run. This is because Mr. M.T. Routt is the owner of the only chain of theaters in Sayerville. So he can set high monopoly prices.

In Clifton, however, he is a part of oligopoly. In a cartel, the firms jointly fix the output and price. Under price leadership, one firm (called the price leader) sets the price and other firms follow him. The firms that follow the leader are called followers. Secondly, in a cartel, there is a central agency that makes it mandatory for firms to surrender their freedom of action. While in the case of price leadership, following firms are free to decide their own actions, hence preferred by many oligopoly firms.