Certified Management Accountant Practice Exam

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What happens in a cartel arrangement?

Firms increase competition among themselves
Firms join together for price fixing purposes
Firms operate independently to set prices
Firms disband to reduce market influence

The correct answer is: Firms join together for price fixing purposes

In a cartel arrangement, firms join together for price-fixing purposes. This means they collaborate to set prices at a certain level, rather than competing with each other. The primary goal of a cartel is typically to increase their collective market power, thereby allowing them to charge higher prices than they would be able to in a competitive market. By coordinating on prices, quantities, or market shares, cartel members seek to maximize their profits, often to the detriment of consumers and overall market health. This type of collaboration is illegal in many jurisdictions because it undermines the principles of free market competition.