The Gulf Cartel and Sinaloa Cartel are the two major cartels in illegal drug trade in Mexico. Although, each of these cartels are better off sharing the market, they have an incentive to try to take the entire market. In which of the following ways is cheating among these cartel members dealt with in this region?

The Gulf Cartel and Sinaloa Cartel are the two major cartels in illegal drug trade in Mexico. Although, each of these cartels are better off sharing the market, they have an incentive to try to take the entire market. In which of the following ways is cheating among these cartel members dealt with in this region?

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter24: Monopolistic Competition, Oligopoly, And Game Theory

Section: Chapter Questions

Problem 5QP

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Assume the following scenarios. First, identify their nature of the situation (that is, which type of game and situation is implied) and second, discuss each one of them in terms of outcomes and possible solutions. (a) A cartel has a collective interest in restricting output to earn a monopoly profit. At the same time, cartel members can increase their individual profits by cheating on the cartel, that is, exceeding their quotas. (b) Abnormally cold winter temperatures bring the threat of a shortage of natural gas for heating buildings and homes.
Why are cartel agreements often not successful? Different firms experience different costs. All parties would make more money if everyone increased production. One party has an incentive to cheat to make more profit?
Game theory. Pretend you're in the following situation: A and B are two different cloth making enterprises. Both companies A and B were successful in bringing their products to market. However, because company A was the first to make a move, a significant portion of the country's population chose to use the product manufactured by company A because they had already established a positive reputation in the market. Although the revenues of company A were increasing, the company B was struggling to maintain its position in the market with their goods. Because firm A was the first to make a move, it enjoys a competitive advantage over company B in the marketplace. 1. Prove that the situation IS а game (explain strategic interaction/conflict) and solve the game with appropriate approach.
If a group of sellers could form a cartel, what quantity and price would they try to set? What is the prisoner's dilemma, and what does it have to do with oligopoly?
The U.K. Office of Fair Trading has recently unveiled a plan that will offer immunity from prosecution to firms who blow the whistle on their co-cartel conspirators. In the United States, this tactic has proven extremely successful: Since its introduction in 1993, the total amount of fines for anticompetitive behavior has increased twentyfold. Show how the tactic initiated by the U.S. Department of Justice, soon to be followed by the U.K. Office of Fair Trading, changes the rules of the game played between firms in a secret cartel.
If in Ventura county there is an oligopolistic market, where each company has a kinked demand curve, then what will be the effect when one of these companies raises its price? Group of answer choices The other oligopolists will immediately raise their prices to match. The other oligopolists will exit the cartel. The other oligopolists will not change their prices. The other oligopolists will lower their prices.
Whether oligopoly is analyzed from a game theoretic framework or modeled as a cartel, the incentive and temptation to "cheat" is common to all of these approaches. While this amounted to confessing to a crime for Bonnie and Clyde, for the oligopolistic sellers "cheating" amounts to overproducing in an effort to gain profits. The problem, at least for the oligopolists, is that each seller is thinking along these same lines, and so all of the overproduction drives down the price of the output. Let's look at this with a numerical example. Suppose the market for high end kitchen utensils is dominated by two firms named Pete's Patented Peelers and Pat's Patented Parers. The demand for the entire market is seen in the following table. Assume that after incurring $1,000 of fixed costs in setting up production the Marginal Cost of producing one more unit for either of these producers is $5. First, find the price and quantity combination that would maximize industry profits if Pete and Pat…
Whether oligopoly is analyzed from a game theoretic framework or modeled as a cartel, the incentive and temptation to "cheat" is common to all of these approaches. While this amounted to confessing to a crime for Bonnie and Clyde, for the oligopolistic sellers "cheating" amounts to overproducing in an effort to gain profits. The problem, at least for the oligopolists, is that each seller is thinking along these same lines, and so all of the overproduction drives down the price of the output. Let's look at this with a numerical example. Suppose the market for high end kitchen utensils is dominated by two firms named Pete's Patented Peelers and Pat's Patented Parers. The demand for the entire market is seen in the following table. Assume that after incurring $1,000 of fixed costs in setting up production the Marginal Cost of producing one more unit for either of these producers is $5. First, find the price and quantity combination that would maximize industry profits if Pete and Pat…
Modeling a cartel as a prisoners’ dilemma game shows that ____________________ may be rational even if ____________________. non-cooperation; cooperation benefits everyone cooperation; cooperation benefits everyone cooperation; cooperation damages everyone non-cooperation; cooperation damages everyone
A certain rural village has numerous small farms which raise livestock. There are two large and equally sized landowners, Jimmy and Bob, which produce hay for the farmers’ animals. Below is the daily village demand for hay Suppose, for simplicity, that Jimmy and Bob have the same constant cost structure, so maximizing total revenue maximizes profit. If Jimmy and Bob initially form a cartel, but subsequently succumb to the temptation to cheat on each other, what will be the Nash equilibrium? Jimmy and Bob will each earn a daily profit of $625. Jimmy will earn a daily profit of $700 and Bob will earn a daily profit of $500. Bob will earn a daily profit of $700 and Jimmy will earn a daily profit of $500. Jimmy and Bob will each earn a daily profit of $525.
Even when allowed to collude, firms in an oligopoly may choose to cheat on their agreements with the rest of the cartel. Why?
Company A and Company B are competing oligopolists. Both companies are considering increasing or maintaining their prices. The payoff matrix shows the profits of the companies in millions based on their possible actions.. Company A Increase Price Company B Increase Price Maintain Price $50, $40 Maintain Price $55, $45 $35, $30 $60, $35 The government offers a $5 million subsidy to maintain current pricing. What is the expected outcome of the new payoff matrix, given the subsidy? The Nash equilibrium changes, and both companies will maintain their prices The Nash equilibrium changes, and both companies will increase their prices. The Nash equilibrium remains the same, and both companies will increase their prices Company A will increase its price, while Company B maintains its price. Company A will maintain its price, while Company B increases its price