Question 1) The text cites several conditions necessary for a cartel is to succeed. We discussed in class a number of reasons why cartels typically fail. Compare and contrast these lists. Which reasons do you think are most important in causing a cartel to succeed? Which are most important in causing a cartel to fail? Explain each of these reasons. (30 points)
Below are few of the conditions when cartels will succeed:
• When the cost of formation of a cartel and making sure that all cartels agree to an agreement are lower as opposed to the gains that will derive out of forming the cartel.
• Cartels that develop organizational structures that allow them the flexibility to respond to the changing conditions are more likely to survive.
• If cartel organizations can develop strategies to monitor one another to deter cheating.
• If cartel organizations can come up with a variety of interventions to increase barriers to entry.
• When the cartels can increase the market price without facing any stiff competition from the non-cartel members.
• When the market conditions are right and the demand and supply is not too elastic.
• Cartel success also depends on a number of other factors: the rate at which technology changes, the homogeneity of member firms and how good the members at making and accepting decisions.
• Government policies also play a very key role in the success of a cartel.
Below are few of the conditions when cartels may fail:
• When cartels become too big to manage and control.
• When members of cartel take the cheating route.
• When the cartels are unable to prevent entry of new competitors to the market.
• When the cartels are unable to prevent competition from new products.
• When new competitors can easily become a part of the cartel.
• When cartel members have difficulty to come to an agreement on pricing and dividing the business.
• When demand and supply conditions are more elastic.
Important reason for cartel to...