A Formal Agreement Among Competing Firms

An agreement is an agreement between competing companies to obtain higher profits. Agreements generally occur in an oligopolistic industry where the number of sellers is low and the products marketed are homogeneous. Cartel members can agree on price fixing, total industry production, market share, customer distribution, allocation of territories, supply manipulation, creation of common distribution agencies and profit sharing. Whether cartel members choose to defraud the cartel depends on the fact that the short-term revenues from the fraud outweigh the long-term losses resulting from the eventual bankruptcy of the cartel. It also depends in part on the difficulty for companies to monitor compliance with the agreement by other companies. If surveillance is difficult, it is likely that a member will get away with fraud for longer; Members would then be more likely to cheat and the agreement would be more unstable. Gambling theory suggests that cartels are inherently unstable because the behaviour of cartel members is a prisoner`s dilemma. Any cartel member would be able to make a higher profit, at least in the short term, by breaking the agreement (a larger quantity produced or sold at a lower price) than it would under the agreement. However, if the deal collapses because of defections, companies will return to competition, profits would go down and things would be worse. Don`t miss the special! 20% discount for all courses of the math revolution on demand! Evaluation of the Role of Competition and Collusion in cartel formation In the 1970s, OPEC members successfully agreed to reduce global oil production, resulting in increased profits for member countries. Learn how to identify the 5 common traps in GMAT Critical Reasoning with CrackVerbal (free session). Why it`s twins Donna and Rhonda who are once again looking at another of their long and too-sharp political quarrels. Donna, you see, is a devoted Democrat, and Rhonda is a rigid Republican.

They did not find much to agree on, because they come to remember that they never agreed on anything. In her current debate, Donna is firmly committed to stricter regulation of the banking sector and Rhonda defends the virtues of free enterprise. I`d better put on my jog and intervene before their arguments fight -- again. While I`m doing it, let`s think about the source of political differences. Tell me more... Math Revolution Webinar: "Must-know" Basic Geometry Concepts for GMAT Math Improving GMAT Score 100 Points in 40 Days (Free Webinar) Perhaps the best known and most effective cartel in the world is OPEC, the Organization of Petroleum Exporting Countries. In 1973, OPEC members reduced their oil production. As we know that middle Eastern crude oil had few substitutes, the profits of OPEC members exploded. From 1973 to 1979, the price of oil increased by $70 per barrel, a figure not seen at the time. However, in the mid-1980s, OPEC began to weaken. The discovery of new oil deposits in Alaska and Canada introduced new alternatives to Middle Eastern oil, sending OPEC prices and profits down. At about the same time, OPEC members began cheating in an attempt to increase individual profits.

Don`t miss the crackVerbal Thanksgiving offer! Get flat 50% off our GMAT online course - a free profile evaluation The AmosWEB GLOSS-arama is a database of 2000 economic concepts and concepts. GLOSS-Arama entries range from A ("a" -- vertical interception of a straight line) to Z ("zoning" - legal restrictions on the location of an activity). The negative slope of the aggregate demand curve, which reflects the inverse relationship between price levels and total expenditure on real output, is explained by three main effects: the real equilibrium effect, the effect of interest rates and the net effect of exports.