Firms in a cartel each have an incentive individually to lower the prices they charge.
a. Suppose there was a government regulation that set minimum prices. Would this regulation tend to strengthen cartels, weaken them, or have no effect?
b. Another way that one firm can cheat on a cartel is to offer a higher-quality product to consumers. Suppose there was a government regulation that standardized the quality of a good. Would this regulation tend to strengthen cartels, weaken them, or have no effect?