Explain in your own words why a cartel may fail in its goals.
Explain in your own words why a cartel may fail in its goals.
Homework Answers
A cartel is a formal or informal arrangement in which a number of producers collude to artificially increase the price level by cutting production. However, cartels tend to be unstable in the long-run. When a cartel is in place, the price becomes higher than the equilibrium price. With a higher price, each cartel member has an increased incentive to break the cartel and produce more to earn a higher profit from the higher price level. Therefore, one or the other party breaks the cartel. When one party breaks the cartel, others follow suit and the cartel becomes unstable.
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