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If a market is organized by a cartel, we can expect: A
If a market is organized by a cartel, we can expect:
A. normal profits for all cartel firms.
B. an incentive for cartel firms to cheat on the cartel agreement.
C. profit maximization by individual firms in the cartel.
D. allocative efficiency.
E. perfectly competitive prices.
Expert Solution
If a market is organized by a cartel, we can expect (B) an incentive for cartel firms to cheat on the cartel agreement. In the long run, all firms in a cartel are worse off by cheating on the agreement. However, because it is often difficult to prove which firm is cheating, all firms have the individual incentives to cheat on the agreement since their profits will be higher, regardless of the actions taken by the other firms.
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