Question 3
[Maximum number: 1]
What is likely to prevent the development of an effective cartel in an industry?
A
a high concentration ratio
B
a limit-pricing policy
C
high fixed costs
D
low barriers to entry
CAIE A-Level Economics 7.7.4 Cartels
Practise identifying price-fixing or quota agreements, explaining conditions for cartel stability and using cost-revenue evidence to analyse cheating, price, output and profit.
How this is tested
- identify a cartel from coordinated prices, market sharing, output restriction or quotas
- explain effectiveness through few firms, high entry barriers, stable demand and enforceable quotas
- use MC and cartel price to calculate the output and extra profit gained by cheating