A Formal Agreement Among Competing Firms

Game theory suggests that cartels are inherently unstable because the behavior of cartel members is a prisoner`s dilemma. Any member of a cartel would be able to obtain a higher profit, at least in the short term, by breaking the agreement (a greater quantity produced or sold at a lower price) than if it complied. However, if the cartel collapses because of defectors, companies would return to competition, profits would decrease and everything would be worse off. Whether the members of an agreement choose to defraud the agreement depends on whether the short-term returns of the fraud outweigh the long-term losses resulting from the eventual collapse of the agreement. It also depends in part on how difficult it is for companies to monitor compliance with the agreement by other companies. If monitoring is difficult, it is likely that a member will get away with fraud for longer; Members would then be more likely to cheat and the agreement would become more unstable. An agreement is an agreement between competing companies to work together to make higher profits. Cartels usually occur in an oligopolistic industry where the number of sellers is small and the products traded are homogeneous. The members of the cartel can agree on these issues: price fixing, total industry production, market share, customer allocation, allocation of territories, supply agreements, creation of joint sales agencies and profit sharing. Don`t miss the CrackVerbal Thanksgiving offer! Get flat 50% off our GMAT online course and a free profile assessment math revolution webinar: “Must-know” Basic Geometry Concepts for GMAT Math The AmosWEB GLOSS*arama is a searchable database of 2000 economic terms and concepts. GLOSS*arama entries range from A (“a” – the vertical section of a straight line) to Z (“Zoning” – legal limitation of the location of an activity). Don`t miss the special offer! 20% discount on all Math Revolution courses on demand! Find out how to identify the 5 most common traps in the GMAT Critical Reasoning with CrackVerbal (FREE session) There seems to be a disturbance on the steps of Shady Valley City Hall.

Why it was the twins Donna and Rhonda who engaged in another of their long-standing and excessively heated political feuds.