Question

1.    How can cartels sow the seeds of their own destruction?

2.    How are the professional sports leagues like a cartel?

ECONOMICS

Answer 1

1. Cartels refer to the group of large producers who dominate the entire market of a good or service. For eg OPEC is a cartel in oil market

Since the cartel has a few large players, all operating for profit maximization, there is a huge incentive for players to cheat the collusive agreement of output in order to increase his individual profits. However, cartels require presence of large firms in their group in order to gain market dominance. As the number of players in cartel increases, so does the scope of cheating by those firms.

This makes the cartel vulnerable to cheating. And as one firm cheats, others respnd to the same ways, indulging in price and output wars, thereby bringing down profits of the entire market.

This ways, by increasing market players to increase market power, cartels sow the seeds of their own destruction, by exposing themselves to higher risk.

2. The professional sports leagues are like a cartel because these leagues consist of a few large sports teams who play against each other, although they are considered as a single and uniform entity to the outside world. All their moves and strategies are well coordinated and they face the market together as one entity.