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Collusive Agreements among Cartel Members Are Difficult to Maintain Because

Collusive agreements among cartel members are difficult to maintain because of several reasons. A cartel is a group of businesses that form an agreement to limit competition, control prices, and increase profits. Collusion is the act of conspiring with others to deceive and manipulate the market in favor of the cartel`s interests. However, enforcing and sustaining a collusive agreement among cartel members can be challenging due to various reasons.

Firstly, cartel members have different interests and objectives. Even though all members form the agreement to increase profits, each member`s priorities and strategies may differ. This difference results in a conflict of interest among members that could destabilize the agreement. For example, a member who is focused on short-term profits may be willing to cheat the agreement while jeopardizing the other members` long-term interests.

Secondly, the incentive to cheat is high. Members would like to gain a competitive advantage over others by breaking the agreement. The cheating member would gain more market share and increase profits. However, this act would undermine the cartel`s credibility and trustworthiness. Once other members realize that cheating is possible, the agreement would become ineffective, and the cartel would break down.

Thirdly, external factors could affect the cartel`s agreement. Economic or industry changes could impact cartel members` profits, creating a need for members to adjust their prices and strategies. In such scenarios, some members may find it more beneficial to cheat the agreement, resulting in a breakdown of the cartel.

Lastly, the legal and regulatory environment could pose a challenge to the cartel`s agreement. Most countries have antitrust laws that prohibit collusive agreements and price-fixing. The government could impose fines and even imprisonment for members who violate these laws. The risk of legal action could make some members hesitant about maintaining the agreement.

In conclusion, collusive agreements among cartel members are difficult to maintain due to conflicting interests, the incentive to cheat, external factors, and the regulatory environment. Members must maintain trust and comprehension to sustain the agreement`s success, share risks and benefits, and avoid the temptation to cheat. Failure to adhere to these principles will result in a breakdown of the cartel and its goals.