A Cartel Is A Formal Agreement Among Firms To Collude

Would you expect the sloping demand curve to be more extreme (like a right angle) or less extreme (like a normal demand curve) when each cartel company produces an almost identical product like OPEC and oil? What if each company makes a slightly different product? Explain your reasoning. In the context of the study of the economy and competition in the market, agreements take place within the same sector when competing companies cooperate in their mutual interest. Agreements often take place within an oligopoly structure where there are few companies and where agreements have a considerable impact on the entire market or on the sector as a whole. In order to distinguish an agreement, collusive agreements between parties must not be explicit; However, the effects of agreements and agreements are the same. [4] In an oligopoly, will companies act more as a monopoly or rather as competitors? Tell me. If a company lowers its price to $300, it can only sell 11,000 seats. However, if the airline tries to raise prices, other oligopolists will not increase their prices and the company that has increased prices will lose a significant share of sales. For example, if the company increases its price to 550 $US, the turnover drops to 5,000 seats sold. Therefore, if oligopolists still reassess the price declines of other antitrust firms, but no price increases, none of the oligopolists will have a strong incentive to change prices, as the potential benefits are minimal. This strategy can function as a silent form of cooperation in which the cartel manages to maintain production, increase price and share a level of profit monopoly, even without a legally binding agreement. While it is illegal in many parts of the world for companies to set prices and drive a market, the temptation to make higher profits makes it extremely tempting to oppose the law. When OPEC significantly raised the price of oil in the mid-1970s, experts thought it was unlikely that the cartel would be able to remain united in the long run – that individual incentives to cheat would become too strong. More than forty years later, OPEC still exists.

Why do you think OPEC has managed to exceed quotas and continue to collide? Note: You can consider non-economic reasons. Company B justifies that if it cheats and Company A does not notice, it will double its money. However, as Firm A`s profits will decline significantly, it is likely that Company A will notice, and if so, Company A will also cheat, with the result that Company B will lose 90% of what it has earned through fraud. Company A will justify that Company B is unlikely to cheat. If neither company cheats, Firm A earns $1000. If Firm cheats A, provided Firm B doesn`t cheat, A can only increase its profits a little, because Company B is so small. If both companies cheat, then Company A loses at least 50% of what it could have earned. The possibility of a small gain (50 usd) is probably insufficient to induce Company A to cheat, so it is likely that the two companies will work together. An example of the pressure these companies can exert on each other is the demand curve, in which competing oligopolies companies commit to harmonizing price declines, but not price increases. [link] shows this situation.

Say that an oligopoly company has agreed with the rest of a cartel to provide 10,000 seats on the road from New York to Los Angeles for a price of $500.

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