Cartel Agreements Are More Likely To Break Down When

Another important source of instability in agreements comes from incomplete information provided by their members. In particular, as we know in Prisoner`s dilemma game, each player retains a unilateral incentive to act opportunistically in many situations of oligopolistic interaction. It is true that a cartel is a solution to a cooperative game – a binding agreement providing for sanctions in the event of an overflow – but it is also true that in reality the actions of the partners are not closely observable. This leaves room for opportunistic and selfish actions that undermine the cohesion of the cartel. Let`s look at a simple example in Figure 6.5 that illustrates this possibility. One member produced more than expected and demand decreased, so that the new demand curve (between D and D“) and the new supply curve (between S and S) are at one of the points in segment AB, all of the order of p∗, the observed price. Now, if one of the „loyal“ members thinks that the cause of the price drop is the first or third possibility, it is considered expedient to violate the agreement by also trying to produce and sell more than the agreement allows. In other words, the imperfect observability of the relevant economic variables and the conduct of the parties to the cartel may prompt any action leading to the dissolution of the cartel. Finally, economic activity appears to be an important factor in the sustainability of the cartel. Based on industrial production indices for the US, UK and France, Suslow concludes that economic volatility or positive and negative „surprises“ contribute to the collapse of the cartels. Their results also indicate that below-trend economic activity tends to reduce the survival of cartels. Suslow`s investigation therefore empirically supports Greens and Porter`s characterization of antitrust behavior.

The number of companies that make up the cartel seems to influence sustainability. Information on company membership was available for 41 episodes; Of these, 64% had five or fewer members and 83% had 10 members or less. In addition, „in markets with relatively few companies, formal cooperation is chosen rather than tacit coordination“. [Suslow (1992) p. 12] The pressing economic and political issues posed by the OPEC cartel manifested themselves in two national resource assessments: the NURE for Uranium (US DOE (1980)) and the petroleum resources assessment that led to USGS 725 [Miller et al. (1975)] These two assessments used (1) subjective geological analyses as a means of estimating the size of undetected deposits and (2) the description of quantitative estimates by subjective probabilities. Due to the urgency of the policy issues that have been studied with regard to estimates of the quantity and quality of undetected deposits, the methods have been studied more carefully than ever. The European Commission has recognised antitrust and antitrust behaviour and has opened an ongoing investigation into the manipulation of EURIBOR. However, no supervisory authority has yet seen a complete picture of all the consequences, as in many cases supervisors and investigators only monitor the temporal effects of the trading portfolio of the banks concerned. The total impact on the real economy is often greater and greater.

In the case of EURIBOR, the manipulation took place at a time when euro area fiscal coordination was weak and a small change in the interest rate could have massive consequences on how policies were designed and economic decisions were made. . . .