• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Explain very briefly what factors determine whether a cartel,or collusive oligopoly, can exist or succeed.

Extracts from this document...

Introduction

(i) Explain very briefly what factors determine whether a cartel,or collusive oligopoly, can exist or succeed. Oligopolistic market has a relatively small number of competing firms. In such field, every firm's output and pricing decisions are likely to have a major effect on its rivals. every firm is interdependence to each others. It can be seen if an individual firm embarks an increase in output or reduction in price. The sales of its rivals will suffer a big impact, and then they are likely to react. Prior to it is impossible for firm to act independently of each other. a firm need try and predict how rival firms are going to react which causing uncertainty and makes it complicate to plan for the future. So it provokes firms to work on together to reduce the uncertainty. They might agree to restrain their independent decision making. Collusion that takes place in a cartel is an agreement made by a number of independent firms to co-ordinate decisions. ...read more.

Middle

the same wholesale price and offering similar discount for within a geographic region which can be seen they worked as a cartel. It is because cartel members can have an agreement and divide up the market between them and agreeing not to sell in each other's designated area. This enables each firm to set prices knowing that its 'rivals' will not undercut them. A market-sharing cartel may be no more than an agreement among firms not to approach each other's customers or not to sell to those in a particular area. It may involve secretly allocating specific territories to one another or agreeing lists of which customers are to be allocated to which firms. Also cartel is likely to take place in concentrated industries and in smaller geographic areas. Though in this oligopolistic industry are selling homogeneous products (petrol), then it is easier for them to reach the price agreement. Because in this circumstances firms are less difficult to compute whether change in sales. ...read more.

Conclusion

It is easier to form a cartel in a market with inelastic demand, because the more inelastic the demand curve, the higher the price that can be set by the cartel with relatively lower reductions in quantity, in other words, it is more complex to form a cartel when the market demand is more elastic. What is more, a cartel among few firms the probability of spotting by the government is correspondingly lower and the negotiations between firms are less complicate and enforcement and monitoring costs of the cartel are low, it will be easily to form combination. Overall, low expectation of serve sanctions would be a factor that incentive oil firms gathered to collude if the cartel might not expect cartel behaviours to be easily unveiled or severely punished. All these expectations come from the legislation might not be as strict to against cartels as the government is not very effective in managing and punishing cartels or when the penalties are not too heavily Reference: MODERN ECONOMICS , MACMILLAN BUSINESS, 7TH edition, JACK HARVEY MANAGERIAL ECONOMICS Applications, Strategy and Tactics, SOUTH-WESTERN, 9TH edition, James R. McGuigan INTERNET: www.compecon.ie/oligopoly.htm www.bath.ac.uk/~mn1wl/economics%20essay.htm www.economics.tcd.ie/tep/tepno16JT23.PDF ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. Is the Watch Industry dominated by an Oligopoly which is beneficial to both firms ...

    However, they are being benefited through effectively being monopolies, which I had not considered. Consumers do not benefit as much as I had earlier presumed, nevertheless, as the watch industry isn't actually a monopoly but an oligopoly, there is still some price competition, which may bring prices down some.

  2. What are Cartels?

    Diagram 2 shows a firm in a cartel. Before the cartel is formed produces an output of Q1 at a price of P1 and earns no profit. After joining the cartel it reduces output to Qc and changes the price to the cartel price, Pc.

  1. Use game theory to analyze an oligopoly competition of two great rivals, Wal-Mart and ...

    In South America - both Carrefour and Wal-Mart didn't compete vehemently. It seems to be a tacit avoid notwithstanding that both retailers have increased the speed of global expansion. Since China actualized open-door policy, the purchasing power dramatically increased. Since 1980 both traditional supermarket and department store hasn't been meeting the demands of one-step shopping.

  2. Biography of Adam Smith.

    The monopolists, by keeping the market constantly under-stocked, by never fully supplying the effectual demand, sell their commodities much above the natural price, and raise their emoluments, whether they consist in wages or profit, greatly above their natural rate." Corporate libertarians fervently oppose any restraint on corporate size or power.

  1. A study of Cartels.

    Diagram 2 shows a firm in a cartel. Before the cartel is formed produces an output of Q1 at a price of P1 and earns no profit. After joining the cartel it reduces output to Qc and changes the price to the cartel price, Pc.

  2. Was it a credible commitment by De Beers to threaten to punish any defectors ...

    Given these factors, a higher discount factor will result in an increased probability of collusion being sustainable. Were the discount factor very low, future profits would hold relatively little value for a firm, and hence would have less of an impact on its future decisions.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work