Consider a Cartel Consisting of Several Firms That Is Maximizing

question 21

Multiple Choice

Consider a cartel consisting of several firms that is maximizing total profit.If one firm cheats on the cartel agreement by cutting its price and increasing its output,the best response of the other firms is to

• A)cancel the cheating firm's membership in the cartel.
• B)continue to sell at the agreed-upon price.
• C)raise their price to recapture lost profit.
• D)cut their prices as well.
• E)cut output to keep total cartel output at its original level.

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Definitions:

Tie-In Sales

A sales technique where the purchase of one product requires the purchase of another product as well.

Exclusive Agreements

Contracts that restrict parties from engaging in similar agreements with others, often used in distribution or partnership scenarios.

Exclusive Dealership

A business agreement in which a supplier grants a retailer the right to be the sole seller of its product or service in a specific geographical area.

Price Discrimination

The strategy of selling the same product or service at different prices to different customers, based on factors like location, customer segment, or purchase volume.