Which of the following situations reduces the likelihood of successful operation of a cartel?
A) Cartel sales experience a rapid expansion.
B) The demand for cartel output is price inelastic.
C) The number of firms in the cartel is large.
D) It is very difficult for new firms to enter the market.

Question

Quizplus · Accepted Answer

The larger the number of firms in the cartel, the more difficult it is to maintain cooperation and prevent cheating. This reduces the likelihood of successful operation of the cartel. A rapid expansion of cartel sales or a price inelastic demand for cartel output would increase the profitability of the cartel, making it more attractive to firms to join and adhere to the cartel agreement. Difficulty for new firms to enter the market would also make it easier for the cartel members to maintain their market power.

Which of the Following Situations Reduces the Likelihood of Successful