Question

Take a look back at the data regarding the inkjet printer industry in Problem 26-2, and answer the following questions.

a. Suppose that consumer demands for inkjet printers, the prices of which are readily observable in office supply outlets and at Internet sites, are growing at a stable pace. Discuss whether circumstances are favorable to an effort by firms in this industry to form a cartel.

b. If the firms successfully establish a cartel, why will there naturally be pressures for the cartel to break down, either from within or from outside?

Short answer

(a) There are only seven companies in the inkjet printer industry. Because the product is nearly identical, a cartel is possible.

(b) The industry's economic profits may encourage firms outside the cartel to begin manufacturing and selling inkjet printers.

Step-by-step solution

Given information 

The given sentences are (1)

Suppose that consumer demands for inkjet printers

Explanation (1)

(a)

Prices are rising at a steady rate, which clearly favours enforcing a cartel agreement. There are only seven companies in the inkjet printer industry. Because the product is nearly identical, a cartel is possible.

Step  3: Given information 

The given sentences are : (b)

Break down, either from within or from outside?

Explanation (b)

(B) The cartel contract may be broken in order to increaseprofits. Companies will increasetheir profits by expanding production at higher cartel prices.Therefore, there is always thepotential for fraud in cartel contracts. The economic interests of the industrycould allow non-cartel companies in the industry tobegin manufacturing and selling inkjet printers.