Take a look at the reasons why cartels collapse presented in this chapter. For each pair below, choose the case where the cartel is more likely to stick together.  lop85

a. An industry where it’s easy for new firms to enter vs. an industry where the same firms stick around for decades.

b. When the government makes it legal for all the firms to agree on prices vs. when the government makes it illegal for all firms in an industry to agree on prices.

(Note: The Sherman Antitrust Act made the latter generally illegal in 1890, but President Franklin Roosevelt’s National Industrial Recovery Act temporarily legalized price-setting cartels during the Great Depression.)

c. Cartels where all the industry leaders went to the same schools and live in the same neighborhood vs. cartels where the industry leaders don’t really know or trust each other.

(Hint: As Adam Smith said in the Wealth of Nations, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”)

d. An industry where it’s easy for a firm to sell a little extra product without anyone knowing (e.g., music downloads) vs. an industry where all sales are public and visible (e.g., concert tickets).

e. An industry where a high price spurs new production vs. an industry with highly inelastic supply.