A cartel is an explicit agreement among competing firms to fix prices,

Question

A cartel is an explicit agreement among competing firms to fix prices, marketing, and production. The goal of a cartel is to increase individual members’ profits by reducing competition. Although firms in many industries have tried to organize cartels, very few known cartels have lasted for more than 4 or 5 years. The main issue is that the members of a cartel all have an incentive to cheat and cut prices just a little in order to maximize their individual profits at the expense of profits of the cartel as a whole.

Indicate the statement in the table that the given information most strongly suggests is true, as well as the statement that the given information most strongly suggests is false. Make only two selections, one in each column.

Sajjad1994 · Accepted Answer

Official Explanation

In a cartel, competing companies conspire to fix prices (among other things), allowing the companies collectively to earn more in profits. Perhaps not surprisingly, companies that are willing to join a cartel are also willing to cheat their fellow members in order to increase their own profits—at the expense of the cartel. As a result, few cartels last very long in practice.

(A)  While the argument does state that very few known cartels have lasted for more than 4 or 5 years, that statement also implies that at least one cartel has lasted longer than 4 or 5 years. It is possible that that cartel could have lasted more than 100 years.

(B)  The argument does state that the tendency for members to cheat can break the cartel, but it does not state that this is the only way in which cartels can be broken. There may be any number of reasons why a cartel could fail.

(C)  False.   The argument states that very few known cartels have lasted for more than 4 or 5 years, implying that at least some cartels have formed successfully, though they may have failed eventually.

(D)  The passage does not discuss legality. Although this statement is likely to be true in the real world, it cannot be inferred from this passage.

(E)  True.   According to the argument, cartels are designed to maximize collective profits, but the members have an incentive to cheat in order to maximize individual profits at the expense of collective profits. This describes an inherently unstable structure. The argument also states that few cartels have lasted more than a few years; in other words, most are likely to fail in the long run.

Column 1: The correct answer is E.
Column 2: The correct answer is C.

ameyaprabhu · Answer

A little confused about how we go about finding the 'false' statement.

But from what I understand, Option 5 is true and option 6 is false

sasyaharry · Answer

Option E - True
Option C - False

First we need to find two options that work or are valid. Then we can pick the most true and most false statements.

Option A - No cartel will last more than 100 years. - Too strong a language. There might be cartels that will last more than 100 years but we might never know that. This is ambiguous, hence   eliminate

Option B - As long as the members do not cheat, a cartel cannot be broken.- Again, too strong a language. this suggests a guarantee but the cartel can break for reasons other than members cheating , hence   eliminate

Option C - An effective system for preventing members from cheating would not increase the likelihood that a cartel would survive in the long-term. –   Correct!   This is what the passage implies. Keep.

Option D - Private cartels are not legal in most countries. - Out of scope and hence   eliminate  .

Option E – Cartels are inherently unstable and likely to fail in the long run. –   Correct!   This is what the passage says. Keep.

Option F – It is extremely difficult for competing firms to agree to fix prices, marketing, and production in the formation of a cartel. - We are not concerned with competing firms and formation of cartel, hence   eliminate

From the passage it is very evident that Option E - Cartels are inherently unstable and likely to fail in the long run is a strong candidate for 'true'. 
Option C says if a system can prevent cheating, cartels still wouldn't survive. This is not really true, in fact this is false. There could be a slight increase in survival of cartels if an effective system is put in place. Hence this is false.

mbaaspirant80 · Answer

Dear All, 
here below is answer with explanations.
The passage as a whole strongly suggests that few cartels last more than 4 or 5 years because of the
economic incentive that members have to cheat.
Option A - No cartel will last more than 100 years.
This is much too strong of a statement to be logically inferred from “very few known cartels have lasted
for more than 4 or 5 years.” It could be that one or more known (or unknown) cartels has indeed lasted
100 years, even though only 4 to 5 years is typical.
Option B - As long as the members do not cheat, a cartel cannot be broken.
This is too strong of a statement to be inferred from “The main issue is that the members of a cartel all
have an incentive to cheat and cut prices just a little in order to maximize their individual profits at the
expense of profits of the cartel as a whole.” There could be other issues. Perhaps new suppliers that are
not part of the market enter the cartel, or perhaps the cartel’s product is made technologically irrelevant.
Option C - An effective system for preventing members from cheating would not increase the
likelihood that a cartel would survive in the long-term. – Correct FALSE
The passage says that the main issue is that the members of the cartel have an incentive to cheat, so an
effective system for preventing cheating WOULD likely increase the likelihood that a cartel would survive
in the long run.
Option D - Private cartels are not legal in most countries.
The passage does not discuss legality. Although this statement is likely true, it is not something that can
be inferred from the passage.
Option E – Cartels are inherently unstable and likely to fail in the long run. – Correct TRUE
This can be directly inferred from “very few known cartels have lasted for more than 4 or 5 years” and
“The main issue is that the members of a cartel all have an incentive to cheat and cut prices just a little
in order to maximize their individual profits at the expense of profits of the cartel as a whole.” The
economic incentive to cheat is inherent in the nature of a cartel and makes it inherently unstable.
Option F – It is extremely difficult for competing firms to agree to fix prices, marketing, and
production in the formation of a cartel.
This choice is tempting, but the passage does not discuss the difficulty of forming a cartel agreement.
Although this statement is likely true in the real world, it is too extreme to infer language such as
"extremely difficult" from the passage.
Column 1: The correct answer is E.
Column 2: The correct answer is C. It is extremely difficult for competing firms to agree to fix prices,
marketing, and production in the formation of a cartel.

HarshG7 · Answer

i think there seems to be a problem with the revealed answers. i picked E for the "True" column and it showed me that my answer is incorrect, while the explanation suggests my answers were indeed correct

Bunuel · Answer

The OA shows E as correct: https://gmatclub.com/forum/download/file.php?id=85646 GMAT-Club-Forum-err3muly.png

HarshG7 · Answer

aight my bad. i misinterpreted it

A cartel is an explicit agreement among competing firms to fix prices,

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True	False	Statement
		No cartel will last more than 100 years.
		As long as the members do not cheat, a cartel cannot be broken.
		An effective system for preventing members from cheating would not increase the likelihood that a cartel would survive in the long term.
		Private cartels are not legal in most countries.
		Cartels are inherently unstable and likely to fail in the long run.
		It is extremely difficult for competing firms to agree to fix prices, marketing, and production in the formation of a cartel.

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A cartel is an explicit agreement among competing firms to fix prices,

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