Question

Cartels can detect cheating by Select one: a. reporting each other to government authorities. b. keeping two sets of accounting books, one for internal use and one for tax purposes. c. dividing the market by region so that each cartel member is the only seller in a particular region. d. All of the above.

Answer 1

The answer is C-  dividing the market by region so that each cartel member is the only seller in a particular region.

A cartel is a group of apparently independent producers whose goal is to increase their collective profits by means of price fixing, limiting supply, or other restrictive practices. Cartels typically control selling prices, but some are organized to force down the prices of purchased inputs. Antitrust laws attempt to deter or forbid cartels. A single entity that holds a monopoly by this definition cannot be a cartel, though it may be guilty of abusing said monopoly in other ways. Cartels usually arise in oligopolies -- industries with small number of sellers -- and usually involve homogeneous products.

Firms enter cartels (e.g. price-fixing; bid-rigging) in order to control market uncertainties and gain collusive profits, but face challenges in controlling the cartel itself. A challenge for business cartels is how to organise collective illegal activities without the use of formal control, such as binding legal contracts or arbitration. While one might expect that a lack of formal legal control leads to mutual conflicts and opportunistic behaviour resulting in short-lived cartels, firms often manage to continue their illegal conduct for years. This raises questions as to how firms organise their cartels in the absence of legal means.