Cartel

CARTELS
In any markets, firms have an incentive to coordinate their production and pricing activities to increase their collective and individual profits by restricting market output and raising the market price. An association of firms that explicitly agrees to coordinate its activities is called a cartel. Cartels are more likely to occur when there are only a few firms: an oligopoly. Firms in a cooperative oligopoly may coordinate their actions to maximize their profits. when all firms belong to the cartel, all the gains from reducing output and raising price go to cartel, which divides and the gains about its members. Although firms have an incentive to coordinate activities to restrict market and raise prices, each member of the cartel has an incentive to cheat on the cartel agreement; each cartel member wants to produce more output than it best for the cartel collectively. As a result, cartels tend to break apart even without government intervention. “United we stand, divided w...