Q. Developing countries have often attempted to establish cartels so as to counter the perceived or actual inexorable downward push on the prices of their exported commodities. OPEC is the best well known of these. How are such cartels expected to assist the developing countries? At times importing countries profess support for such schemes. Will you think of any logical basis for such support? How cartels are like monopolies, and how are they dissimilar from monopolies. Why is there a presupposition among economists that such schemes are not likely to succeed in the long run?

Answer: Such cartels are expected to shift the exporters' terms of trade in their favour. As well they are expected to produce the maximum profit which the market will bear. Importing countries may perhaps benefit from the price stability generated by the cartel. Cartels are similar to monopolies in that their total output is the same as that which would be generated by a single monopoly. They are different from monopolies in that the monopoly profits require to be divided among the producing countries which have different cost structures.