Share
Explore BrainMass

Cartel

(Coffee Pricing Agreement Dissolves amidst Dilemma)

When coffee bean harvest is larger than projected, the top Colombia and Brazilian coffee producers along with several African and Central American smaller producers often agree in principle to withhold millions of tons of coffee beans from the market in an effort to raise collapsing wholesale prices. Brazilian producers may propose to hold back 2 million bags of a projected 18-million-bag crop. Colombian producers may agree to hold back 1.3 million bags. However, both countries oppose a formal quota system that assigns production ceilings, imposes monitoring mechanisms, and penalize violators. In 1989 and in 1993, international coffee agreements collapsed over the refusal to accept assigned quotas.

(Questions)

1 Please analyze reasons why this coffee bean cartel is formed

2 What would be the potential reasons to break a cartel and in what situations a cartel can sustain.

3 Can any cartel members exert an efficient threat or penalty for those who break cartel?

Solution Preview

This coffee bean cartel is formed to increase the individual profits of the member firms in the cartel as the strategy of decreasing output or supply and increasing price allows each coffee producer to make higher profits than they would have been able to by acting independently.

A cartel can sustain only if prices can be raised ...

Solution Summary

1 Please analyze reasons why this coffee bean cartel is formed

2 What would be the potential reasons to break a cartel and in what situations a cartel can sustain.

3 Can any cartel members exert an efficient threat or penalty for those who break cartel?

$2.19