The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2

-The Gulf Cartel and Sinaloa Cartel are the two major cartels in illegal drug trade in Mexico. Although, each of these cartels are better off sharing the market, they have an incentive to try to take the entire market. In which of the following ways is cheating among these cartel members dealt with in this region?
A)Through government taxation policy
B)Through legally enforceable contracts
C)Through restrictions on the supply of inputs used by the firms
D)Through output quota and price ceiling
E)Through violence and drug wars

Question

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2
 
-The Gulf Cartel and Sinaloa Cartel are the two major cartels in illegal drug trade in Mexico. Although, each of these cartels are better off sharing the market, they have an incentive to try to take the entire market. In which of the following ways is cheating among these cartel members dealt with in this region?
A)Through government taxation policy 
B)Through legally enforceable contracts 
C)Through restrictions on the supply of inputs used by the firms 
D)Through output quota and price ceiling 
E)Through violence and drug wars

Quizplus · Accepted Answer

Cheating among cartel members in the illegal drug trade in Mexico is typically dealt with through violence and drug wars. Cartels may resort to violence to eliminate competing cartel members and increase their share of the market. This is because there is no legal recourse or regulation in the illegal drug trade, and cheating is not punished through traditional channels such as taxation or legal contracts.

The Table Below Shows the Payoff (Profit) Matrix of Firm