As noted earlier, under oligopoly, the pricing and output decisions of one firm may affect pricing and output decisions of other firms due to close interdependence . However price and output levels may be determined through cartels or price leadership.

Cartels: A cartel is a formal agreement between firms on the price and output levels that should be followed by each firm undertaking the agreement.

 In a cartel, firms under oligopoly formally agree on the price to charge and on the market share of each firm e.g. by setting quotas.

The price agreed on in a cartel is called cartel price and if one or a few firms dishonor it to sell at a lower price this is called a price cut.

Price leadership:- This is where one large firm, through its powerful influence on the market sets the price and smaller firms in the same industry accept and follow it.