Certified Management Accountant 2025 – 400 Free Practice Questions to Pass the Exam

A cartel typically exists in collusive oligopoly scenarios, where a small number of firms dominate the market. In these situations, firms may choose to collaborate rather than compete to maximize their collective profits. By forming a cartel, these firms can agree on pricing, output levels, and market share, which allows them to exert greater control over the market dynamics and reduce the uncertainty that comes with competition.

Collusion among oligopolistic firms can lead to higher prices and reduced output, benefiting the cartel members at the expense of consumers and the overall market efficiency. The cartel's ability to influence prices hinges on the members' agreement to maintain their collaboration, which requires a level of trust and enforcement mechanisms to ensure compliance among members.

The other choices represent scenarios where cartel formation is less likely. In monopolistic markets, a single firm controls the entire market, making collusion with other firms unnecessary. In competitive markets, the presence of many players typically prevents the possibility of collusion since firms are incentivized to compete with one another. International markets may feature various regulatory environments that can hinder the formation of cartels, as competition laws can vary significantly from country to country.