Question

Which of the following is true about cartel behavior? (a) Cartels typically restrict quantity and lower price to the detriment of consumers (b) Cartels must find a way to restrict entry into their business or their rents will be dissipated (c) Cartels typically increase quantity to flood the market with goods, harming consumers (d) All of the above

Answer 1

(d) all of the above

A cartel is a grouping of producers that work together to protect their interests. Cartels are created when a few large producers decide to co-operate with respect to aspects of their market. Cartel members can all raise prices together, which reduces the elasticity of demand for any single member.Members may agree to hide prices or withhold information, such as the hidden charges in credit card transactions. Members may agree to limit output onto the market, as with OPEC and its oil quotas. Cartel members may collectively agree to break up a market into regions or territories and not compete in each other's territory. They are at their most powerful when there are high barriers to entry into the market or industry.