Abstract:
Much of Indonesia's clove crop is used to flavor Kretek cigarettes, which are extremely popular in the country. Clove farmers are poor, however, and a group of Indonesian businessmen proposed that the government require that Kretek cigarettes manufacturers buy all their cloves from a marketing company that the businessmen would form. As the exclusive supplier of cloves to the Kretek cigarettes manufacturers, the marketing company could charge a higher price for the cloves and pay a higher price to clove farmers.
Learning Objective:
This case can be used to discuss supply and demand curves, the problems of keeping markets from equilibrium, and the incidence of a price increase.
