Why Is There A Strong Incentive To Cheat On A Cartel Agreement

Empirical studies, which have a social approach to the stability of cartels, are rare, but we can find similar explanations for cooperative behaviour in studies of legal business practices in informal environments; this is called the “shadow of the law.” It shows that trade relations are socially entrenched and capable of creating social norms that make legal sanctions redundant and unnecessary (Ellickson, 1991; Granovetter 1985; Black 1983, 1984; Macaulay 1963, 2013). Footnote 7 Scientists in economic sociology have pointed to the argument and paradox of the social integration of economic activity, arguing that the closer an informal economy is to the model of a “real market”, the more dependent it is on social connection. Social integration is seen as particularly visible in a context where mutual trust is the only resource against abuse (Doors 2010; Granovetter 1993). Therefore, in the absence of enforceable legal protection, personal relationships between cartels are likely an important factor in the internal stability of cartels. Stephan (2010: 361) states: “The idea that one should befriend individuals in the economy and bring them home can be an explicit social mechanism to ensure that an agreement is respected without strong legal protection.” Personal relationships and interpersonal trust can be responsible for the stability of agreements and three main conditions of interpersonal trust can be identified: communication, reciprocity and reputation. “Member[name club], [C] is right – we report on everything that needs to be reported, but we also see from the order of the numbers [phases of the lunar system] that it seems that there are only two companies still reporting. The rest of them do nothing or are silent. Just when times are tough, it is useful and necessary that we stay in touch (…). We agreed on that. Or is [the environmental certification serial number that these companies need to do business in this market] the end of the [club name]? That`s not possible.

Show a little personality and courage – this attitude leads to nothing, nothing at all. (3) Perhaps the simplest approach for collaborative oligopolists, as you can imagine, would be to sign a contract together to keep production low and keep prices high. If a group of U.S. companies signed such a contract, it would be illegal. Some international organizations, such as the member nations of the Organization of the Petroleum Exporting Countries (OPEC), have signed international agreements to act as a monopoly, maintain production and keep prices high, so that all countries can reap high profits on oil exports. However, such agreements are legally unenforceable because they fall within a shadow of international law. For example, if Nigeria decides to lower prices and sell more oil, Saudi Arabia will not be able to sue Nigeria and force it to stop. J. E. Harrington: 2006. How do the cartels work? Now Publishers Inc.

An example of the pressure these companies can exert on each other is the demand curve, in which competing oligopolies companies commit to harmonizing price declines, but not price increases.