Why do cartels often break down?
What will be an ideal response?
Cartels often break down because of the incentives for each individual member of the cartel to reduce its own price slightly and increase its production in order to reap more profits than those under a cartel agreement. Also, economic profits due to the cartels often provide an incentive for new firms to enter the market and act as a cheating cartel member.
You might also like to view...
It can be shown that average revenue and price are always equal
a. True b. False Indicate whether the statement is true or false
Which of the following is most likely to represent causality rather than association?
A. In years that fashion dictates wider lapels on men's jackets, the stock market grows by at least 5 percent. B. Interest rates are higher in years ending with a 1 or a 6. C. Unemployment falls when the AFC champion wins the Super Bowl. D. Quantity demanded goes up when price falls because lower prices increase consumer purchasing power, ceteris paribus.