Cartels Are Typically Subject to Cheating by Their Members Because

question 8

Multiple Choice

Cartels are typically subject to cheating by their members because

• A) the ACCC will punish any cartel agreement before the cartel has had a chance to operate.
• B) barriers to entry do not exist so new entrants will join.
• C) if the other firms stick to the agreement, a firm can increase its profits by cutting its price.
• D) product differentiation allows the firms in the cartel to cheat.

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Definitions:

Price Skimming

A pricing strategy involving setting an initially high price before gradually lowering it over time as the product's novelty wears off.