Collusive agreements are typically difficult for cartels to maintain because each firm can increase profits by: a. producing more than the quantity that maximizes joint profits. b. producing less than the quantity that maximizes joint profits. c. charging more than the price that maximizes joint cartel profits. d. advertising less than will maximize joint cartel profits.

a. producing more than the quantity that maximizes joint profits.

Explanation:

Cartel is a form of capitalist monopoly that unites a number of enterprises in a particular field. Cartel is a form of monopoly in which its participants retain exclusive ownership of the means of production, independently produce and sell their products. However, they agree on certain terms: production agreement (quota), sales price and sales market agreement for each of the cartel participants.  

There are different types of cartels:

1) Price cartels - formed on the basis of general or common price determination;

2) Sales cartels - formed on the basis of definition of common sales channels;

3) Pricing cartels - restriction on factors determining production and sales;

4) Customer cartels - formulated on the basis of market and customer identification;

5) Domestic cartels - formed for distribution of markets within the state;

6) Interstate cartels are formed to eliminate competition between state-owned enterprises.

Collusion is a fraudulent agreement entered into between various parties in order to obtain mutual benefits. The term is used in law to refer to illegal agreements. When several companies enter into this agreement, called a collusive agreement, they form a cartel. In most cases it is tacit (tacit collusion), companies cease to compete on price in order to maximize profit by increasing the leverage of productivity or research and development of new products / services.

Numerous factors can create problems within a collusive agreement between cartels:

1) Application or enforcement problems: the cartel aims to limit production to maximize the total profits of the members. But every single member finds it profitable to expand production. . Some members could start to produce more than maximized profit of the cartel.It may be difficult for the cartel to enforce its production quotas and there may be controversy over how to share profits. Other firms, not members of the cartel, may choose to take a free tour by selling just below the cartel price.

2 )Falling market demand creates excessive industry capacity and puts pressure on individual companies to update prices to maintain their revenues.

3) Successful entry into the non-cartel business sector compromises a cartel's control of the market. Rapid technological change can often undermine a cartel, e.g. a new competitor with an innovative and successful alternative business model.

4) The exposure of illegal pricing by market regulators such as the EU Competition Commission and the UK Competition and Markets Authority.

5) Exposure of price fixing by companies reporting irregularities: these are companies previously engaged in a cartel which decides to withdraw from it and transmit information to the competition authorities.

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