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How could cartel members design a mechanism to stop the incentive to cheat?

Marketing Dec 24, 2020

How could cartel members design a mechanism to stop the incentive to cheat?

Expert Solution

The members of a cartel can design a mechanism of preventing the incentive to cheat through the implementation of a system of close monitoring of the cartel members, compensation, and the coordination of all the members of a cartel from both the social and economic approach.

The cartel can curb cheating through the formation of mutual trust to enable stability. This can be achieved through different relays like reputation, where the trustworthiness of a member precedes them, reciprocation where any individual member action is to be compensated which creates dependency among the cartel members and communication which plays a big role in building trust among the cartel members.

The prevention of cheating can also be achieved through the fear of retaliation where a cartel member opts to stay in line rather than cheat and face the coercion of all the other members through retaliation and compensation of themselves.

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