Question

Write short notes on cartels.

Answer 1

• In an oligopoly market, cartels are formed through secret agreements between competing firms.
• The main aim is to reduce the uncertainty caused by interdependence in pricing and output decisions.
• In a market-sharing cartel, firms agree to avoid price competition and instead focus on non-price methods like advertising and product differentiation.
• They sell their goods at a mutually agreed common price.
• High-cost firms prefer higher prices to cover their expenses, while low-cost firms may favour lower prices.
• Therefore, the final price is set through negotiation, ensuring that all firms earn some profit.
• Members are not allowed to sell below this agreed price but can still compete in other ways, such as product design and promotional strategies.