Question

The International Association of Bulk Marine Carriers (tramp steamers) is unhappy with the current pattern of the boom and bust price cycles in their industry. They want to form a “shipping conference” like the liner carriers (container ships) to set prices and output. They have asked you to examine the feasibility of forming a cartel, given that international law does not prevent them from creating such organizations.

a. Draw an appropriate economic model(s) and explain whether or not, this industry has the conditions for a cartel organization to be a successful.

b. The bulk marine carriers’ customers are raw material shippers (minerals, coal, grain, etc.) that experience demand shifts as the world economy expands and contracts. Would this make a cartel more difficult to manage? Explain.

Answer 1