1) Assume that there are five oligopolists in the national carpet manufacturing
ID: 1115456 • Letter: 1
Question
1) Assume that there are five oligopolists in the national carpet manufacturing industry and they collude in a cartel arrangement to act as a collective monoply. Explain for each of the following circumstances whether collusion likely to break down and why? (Hint: consider also alternative scenarios if needed)...........................................
(a) A very large number of new carpet sellers enter the market.........................
(b) One of the oligopolists develops a new cost saving technique of producing carpets.......
(c) Some of the oligopolists in the cartel stop respecting the output quotas and raise their production.....
(d) The demand for carpets falls....................................................................
Explanation / Answer
A) cartel will break down because for large no of firms its impossible to maintain a cartel
B) cartel will break because in cartel profit will be shared but if it had been in competition, firm could have earned high profit because of new technique.
C) Cartel will not ne sustainable because all others have an incentive to increase their output.
D) Cartel will be suatained.
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