CFA Practice Question

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CFA Practice Question

When firms act together to set prices, they ______

I. are called a cartel.
II. are violating U.S. antitrust laws.
III. are likely to make higher profits.
IV. have incentives to cheat on the agreement.
Correct Answer: I, II, III and IV

A cartel, illegal under U.S. law, consists of firms acting together to set prices and thus increase profit. Cartels tend to fall apart due to the incentive to cheat.

User Contributed Comments 6

User Comment
DannyZhou If IV is true, why is III true?
SuperKnight I think it is true because "they have incentives" which is true, and not that they actually will cheat.
frants54 It is true because they are likely to make profits if they collude and keep prices high, but they will make even more profit if they cheat on the agreement and sell some of the product at a lower price to consumers with higher elasticities of demand for the product.
robertucla Question not fair for non-US residents
sharky7 @robertucia: common sense, it seems obvious that for USA, the kingdom of liberalism an artificial influence on prices is considered illegal
chesschh Couldnt this be colluding?
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