Question

Discuss three challenges that oligopolistic firms face in having a successful cartel.  

Answer 1

Three challenges are -

1 - The firms often engage in cheating upon the cartel agreement in order to earn more profits by going beyond the output level set by contract

2 - The firms may later not agree upon the same price if they do not find the adequate profits in the cartel agreement

3 - Lack of trust and coordination often leads to managerial inefficiencies