GENERAL KNOWLEDGE

Detailed explanation-1: -A cartel occurs when two or more firms (usually within an oligopoly) enter into agreements to restrict the market supply and thereby fix the price of a product in a particular industry. The aim is to charge a high cartel price and maximise joint profits for cartel members.

Detailed explanation-2: -The common explanation for the instability of cartels is that a successful cartel agreement creates strong incentives for individual members to cheat. Cheating invites retaliation and the result is that the cartel often fails.

Detailed explanation-3: -A cartel is a special case of oligopoly when competing firms in an industry collude to create explicit, formal agreements to fix prices and production quantities. In theory, a cartel can be formed in any industry but it is only practical in an oligopoly where there is a small number of firms.