Producer Cartel Case Study Summary

Question 1
Producer cartels act as intermediaries between the producer and the consumer. However, unlike other stakeholders such as wholesalers and retailers who add value through storing and supplying the products, their aim is just to make profits. They achieve this aspect by ensuring that the producers and consumers do not meet in order to discuss on the prices of the commodities (Barro 2010). As a result, they are able to dictate the prices of the product in the market. In addition, they are able to control the amount of money that is reaching the producers. Cartels thrive because of lack of information. For instance, in 1980s, many of the major producers of coffee had poor technological infrastructures. Therefore, cartels took this opportunity to deceive the farmers concerning the real prices of coffee in the markets. Therefore, they dictated the amount of coffee to reach the market, an aspect that affected the supply of the commodity in the market. As a result, they create an artificial demand, thereby causing an increase in the prices of the commodity. However, on the other side, they maintain a constant amount of money they purchase the coffee from the farmers.

As a result, the demand for coffee in the global market will increase. This will in turn lead to hiking of prices of the available coffee in the market. However, this will only be possible if there are no cartels to affect the forces of demand and supply. In addition, it will be achieved if all the other factors of production remain constant. In an example, this new aspect cannot be achieved if the cost of production in the areas that has not been affected by frost goes up. This is because this might affect their level of production and profits in general. When all other factors are constant, countries that have not been affected by frost will overproduce in order to make immense