It is difficult to maintain a cartel for a long period of time.Which one of the following is the most important reason?
A)Each firm has an incentive to collude.
B)Other firms will enter the industry.
C)Firms in the cartel will want to raise the price.
D)Consumers will eventually decide not to buy the cartel's output.
E)Each firm has an incentive to cheat.

Question

Quizplus · Accepted Answer

Each firm in a cartel has an incentive to cheat by producing more than their agreed-upon quota, lowering prices, and increasing their share of the market. This creates a prisoner's dilemma situation where each firm has an individual incentive to cheat, leading to the breakdown of the cartel.

It Is Difficult to Maintain a Cartel for a Long