MicroEconomic Impact Essay

3391 Words14 Pages
Question 1) The text cites several conditions necessary for a cartel is to succeed. We discussed in class a number of reasons why cartels typically fail. Compare and contrast these lists. Which reasons do you think are most important in causing a cartel to succeed? Which are most important in causing a cartel to fail? Explain each of these reasons. (30 points) Answer 1) Below are few of the conditions when cartels will succeed: • When the cost of formation of a cartel and making sure that all cartels agree to an agreement are lower as opposed to the gains that will derive out of forming the cartel. • Cartels that develop organizational structures that allow them the flexibility to respond to the changing conditions are more likely to survive. • If cartel organizations can develop strategies to monitor one another to deter cheating. • If cartel organizations can come up with a variety of interventions to increase barriers to entry. • When the cartels can increase the market price without facing any stiff competition from the non-cartel members. • When the market conditions are right and the demand and supply is not too elastic. • Cartel success also depends on a number of other factors: the rate at which technology changes, the homogeneity of member firms and how good the members at making and accepting decisions. • Government policies also play a very key role in the success of a cartel. Below are few of the conditions when cartels may fail: • When cartels become too big to manage and control. • When members of cartel take the cheating route. • When the cartels are unable to prevent entry of new competitors to the market. • When the cartels are unable to prevent competition from new products. • When new competitors can easily become a part of the cartel. • When cartel members have difficulty to come to an agreement on pricing and dividing the
Open Document