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Cartel
•Factors facilitate the formation of cartel:I) The ability to raise the market price.ii) Low expectation of sever punishment.iii) Low organizational cost-existence of few firms, highmarket concentration, identical product and existence of trade association reduce this cost.•Detecting cheating –if there are few firms in the market, prices do not fluctuate , prices are widely known and allcartel members has the same type of customer it is easy todetect cheating.
 
Cartel
•Cartels with little incentive to cheat:- MC is inelastic [If MC nearly vertical due to fullutilization of the capacity]- FC are relatively low compared to the TC.- customers place small frequent order or thers is singlesales agent.•Methods to prevent cheating: – -fix more than just price. – Divide the market – Fix market share.
 
Cartel
•. – Use most favored nation clause: this clause in a salescontract guarantees the buyer that the seller is notselling at a lower price to another buyer. – Use meeting competition clause: This clause in a longterm supply contract or in a advertisement guaranteesthe buyer that if another firm offers a lower price , theseller will match it or release the buyer from thecontract. – Use trigger price: cartel will be abandoned if price fall below the trigger price.
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