Question

Evaluate the following statement, "A cartel will put an end to price war which is a barbaric form of competition that benefits no one?"

Answer 1

Let us first define a cartel . A cartel is a group of independent firms , usually in an oligopoly market of few sellers , who collude with each other in order to improve their profits and dominate the market . Thus few firms collude to form a monopoly giant . Thus a cartel formation reduces competition . Thus a cartel increases benefits for producers but reduces consumer welfare . Consumers face higher prices and low quality products due to lack of competition . Thus a cartel may put an end to competition but it does not benefit the economy . It increases welfare loss .