Cartels are typically subject to cheating by their members because
A) the ACCC will punish any cartel agreement before the cartel has had a chance to operate.
B) barriers to entry do not exist so new entrants will join.
C) if the other firms stick to the agreement, a firm can increase its profits by cutting its price.
D) product differentiation allows the firms in the cartel to cheat.

Question

Quizplus · Accepted Answer

Cartels rely on members agreeing to fix prices, limit production, or divide markets to maximize collective profits. However, individual firms have an incentive to cheat by undercutting agreed prices or producing more than their quota to capture a larger market share and increase profits, assuming others adhere to the agreement. This undermines the cartel's stability.

Cartels Are Typically Subject to Cheating by Their Members Because