Cartel can be defined as an attempt by the firms to collude to raise the profits and restrict the output. It is empirical question that whether or when cartel succeed. The success of cartels can easily be measured in terms of their durations, but more significantly it should be quantifiable in capturing the economic impact of cartels.
Some cartels last for an average of five years, variance in cartels duration is also high. But measuring cartel duration is complicated. Some cartels endure for a period, then breakdown and again reform. Cartels stability is a matter of economic theory and stability. Generally cartels face three problems.
• Coordination
• Cheating
• Entry
The cartels should provide the equilibrium so as to increase the profit of group and a mechanism for distributing the same. It should have a structure of monitoring, rewards and punishments to prevent cheating by members. The cartels must restrict entry to the outsiders. So cartels should have a dynamic organization to take care of above problems.
Some cartels do manage to endure. It is more easily measured in terms of profit or cartel – driven price increase. The reasons for breakdown of cartels are competitive entry and secret cheating. Stable cartels do solve the above problems.
Cartels survival given by two factors: first, the cartels that survive are located in industries whose exogenous feature makes collusion easier. Second, cartels address and overcome the problems of coordination, cheating and entry. Industry concentration and large customers aid cartel stability. Demand instability, particularly unanticipated shocks and very rapid growth weaken the cartels stability. However, cyclic fluctuations have little impact on cartel stability.
Successful cartels have sophisticated and flexible organization. Cartels should need to learn how to monitor output and prices of individual cartel members in order to detect cheating. Hierarchy and communications are important for cartels success. The empirical data suggests that existence of incentives and penalties have a significant positive effect on cartels durations.
The failure of cartels can be market related or political. The predominant reason for cartels failure is internal conflict or defection. Political reason can be commencement of World War II. The other reasons are external shocks, entry, technological change etc.
What impact do cartels have? Some cartels survive and able to raise prices and profits. The centralized cartels are more effective in raising the prices. They were able to raise the price 10% to 400% above the unit cost of production and distribution.
More necessary work of theoretical and empirical is necessary for understanding the important questions of the long run, impacts of cartels on investment, productivity and entry.
Some cartels last for an average of five years, variance in cartels duration is also high. But measuring cartel duration is complicated. Some cartels endure for a period, then breakdown and again reform. Cartels stability is a matter of economic theory and stability. Generally cartels face three problems.
• Coordination
• Cheating
• Entry
The cartels should provide the equilibrium so as to increase the profit of group and a mechanism for distributing the same. It should have a structure of monitoring, rewards and punishments to prevent cheating by members. The cartels must restrict entry to the outsiders. So cartels should have a dynamic organization to take care of above problems.
Some cartels do manage to endure. It is more easily measured in terms of profit or cartel – driven price increase. The reasons for breakdown of cartels are competitive entry and secret cheating. Stable cartels do solve the above problems.
Cartels survival given by two factors: first, the cartels that survive are located in industries whose exogenous feature makes collusion easier. Second, cartels address and overcome the problems of coordination, cheating and entry. Industry concentration and large customers aid cartel stability. Demand instability, particularly unanticipated shocks and very rapid growth weaken the cartels stability. However, cyclic fluctuations have little impact on cartel stability.
Successful cartels have sophisticated and flexible organization. Cartels should need to learn how to monitor output and prices of individual cartel members in order to detect cheating. Hierarchy and communications are important for cartels success. The empirical data suggests that existence of incentives and penalties have a significant positive effect on cartels durations.
The failure of cartels can be market related or political. The predominant reason for cartels failure is internal conflict or defection. Political reason can be commencement of World War II. The other reasons are external shocks, entry, technological change etc.
What impact do cartels have? Some cartels survive and able to raise prices and profits. The centralized cartels are more effective in raising the prices. They were able to raise the price 10% to 400% above the unit cost of production and distribution.
More necessary work of theoretical and empirical is necessary for understanding the important questions of the long run, impacts of cartels on investment, productivity and entry.