Question

Cartels usually breakdown because of what?

• Cartels can only be effectively run if they use Game Theory software.

• They can't control the supply of the good or service.

• They can't control the market price.

• Usually there is one greedy firm in the cartel that will break the cartel agreement and sell at a lower price to grab as much market share as they can.

Answer 1

It can be mentioned that cartels can not only be run effectively by game theory software but mutual cooperation is required in in running the car and that is the reason why the first option is wrong and the second option which says that they cannot control the supply of the good is also wrong because if they have agreed upon a price every firm of the capital might supply the specified amount of good because supply and production is always in their hands, cartel is usually formed for controlling the market price and therefore the third option is also wrong

Therefore (a,b,c) are wrong.

However cartel usually breaks down because when every company in the cartel agrees to set a price, then what happens is that a firm in the group can be greedy form which can cheat because there is an incentive to cheat that is the market share can be shifted to this firm if the price is decreased and that is the reason why due to trust issues the cartel might not work in all the cases and that is the reason why

(D)

Usually there is one greedy firm in the cartel that will break the cartel agreement and sell at a lower price to grab as much market share as they can is the answer to this question