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A cartel is an explicit agreement among competing firms to fix prices, marketing, and production.

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A cartel is an explicit agreement among competing firms to fix prices, marketing, and production.  The goal of a cartel is to increase individual members' profits by reducing competition.  Although firms in many industries have tried to organize cartels, very few known cartels have lasted for more than 4 or 5 years.  The main issue is that the members of a cartel all have an incentive to cheat and cut prices just a little in order to maximize their individual profits at the expense of profits of the cartel as a whole.

Indicate the statement in the table that the given information most strongly suggests is true, as well as the statement that the given information most strongly suggests is false. Make only two selections, one in each column.

True False Statement
    A cartel is an explicit agreement among competing firms to fix prices, marketing, and production.  
    As long as the members do not cheat, a cartel cannot be broken.
    An effective system for preventing members from cheating would not increase the likelihood that a cartel would survive in the long term.
    Private cartels are not legal in most countries.
    Cartels are inherently unstable and likely to fail in the long run.
    It is extremely difficult for competing firms to agree to fix prices, marketing, and production in the formation of a cartel.

 

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