You read that 25 firms that grow and export peanuts to the United States decide to form a cartel. The cartel aims to raise the price of peanuts and reduce output to increase profits for the peanut growers. You predict that this cartel will probably
A) not be successful because the number of firms is unmanageable and there are a number of good substitutes for peanuts.
B) not be successful because there are too few firms that are trying to organize the cartel.
C) be successful because the demand for peanuts is very elastic.
D) be successful because it will be very easy to enforce the rules among only 25 firms.

Question

Quizplus · Accepted Answer

Cartels often struggle to maintain discipline among a large number of firms due to coordination challenges and the temptation for individual firms to cheat for personal gain. Additionally, the presence of good substitutes for peanuts means consumers can easily switch to other products if peanut prices rise, undermining the cartel's efforts to increase prices.

You Read That 25 Firms That Grow and Export Peanuts