Why cartels unstable and why do they often fail


Why cartels unstable and why do they often fail

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Min Words: 150

Max Words: 200

Level of Detail: Show all work

Other Requirements: Give a reply to the essay posted with opinion and if you agree or disagree. need at least 1 reference.


Need a 150 word opinion reply to the following if agree or disagree and need at least 1 reference

Why are cartels unstable and why do they often fail?

Cartel arrangements are considered unstable due to price fixing or market sharing agreements. Falling demand can create excessive capacity in the industry, especially during an economic recession. Another reason a cartel would be considered unstable is due to the entry of non-cartel firms entering into the industry. This entry can cause new competition. Additionally, exposures of price fixing by Government agencies have been working on reducing cartel behavior. The increased laws have included incentives and rewards for ‘whistle-blowers whom have worked towards reducing cartel behaviors. Finally, cartels are considered unstable due to over-production. The result of over-production causes a break in the price fixing. (Riley, G 2009).

It is common for game theory to be applied to the costs and benefits of operating a producer cartel. The classic Prisoner’s Dilemma suggests that collusion breaks down because there is an incentive for one or more firms to cheat because joint-profit maximization does mean each firm is maximizing profits on their own (Riley, G 2009).

Respond to the charge that immigrants flood the labor market and drive down wages in the U.S.

Immigration is a contributing factor to the current state of the economy in the United States. Immigration can be credited with improving the business cycle, through labor supply and has helped to reduce the labor supply during a recession as immigrants are discouraged to emigrate during these times. There is a general belief that immigrants drive down wages and reduce the number of available job opportunities. This flood of unskilled workers into the United States can drive down the domestic wage rate for all Americans. However, there is no conclusive proof to support that either of these theories is true (Jackson, G. 2006).

Conversely, there was a theory that importing highly skilled laborers was advantageous. Almost as soon as it began the theory changed. We now believe that the influx of skilled workers into the U.S. is slowing down the rate at which wages would have risen. . There are an estimated 255,000 skilled workers in the U.S. now, working under a visa program. The main concern is that large corporations, like Microsoft, will abuse the visa program to keep wages down and will also be able to avoid the costs of training staff (Jackson, G. 2006). .

At this point all of these accusations are just that; further investigation is still needed. However, it is important to never forget that anytime there is a way to save money, companies will do it. It is the quest for ultimate savings that corporations that everyone is looking for and they will do almost anything to get it.


Jackson, Gerald (2006) Will Skilled Immigrants Drive Down US High-tech Wage Rates? Retrieved http://www.safehaven.com/article/5442/will-skilled-immigrants-drive-down-us-high-tech-wage-rates

Riley, Geoff (2009) Q&A: Why do cartels often collapse? A Level Economics. Retrieved from http://www.tutor2u.net/blog/index.php/economics/comments/qa-why-do-cartels-often-collapse

  • Written in: 19-Sep-2014
  • Paper ID: 576
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