Costs of Maintaining a Cartel

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The costs of operating a cartel are determined by the effort spent on policing member firms and errors in detection of cheaters. An output review is modeled that may be used with trigger pricing. In the presence of a Wiener process to describe disturbances in demand, the cartel uses trigger pricing first and then switches to an output review. Costs generated by cartel maintenance affect social welfare and provide a foundation for analyzing the impact of a cartel on society.