Cartel: Difference between revisions
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[[File:Cartel- OPEC.jpg|450px|thumb|right|Figure 1. The headquarters of [[OPEC]] in Vienna, Austria<ref>By DALIBRI - Own work, CC BY-SA 3.0, [Online], Available: https://commons.wikimedia.org/w/index.php?curid=20982621.</ref>]] | [[File:Cartel- OPEC.jpg|450px|thumb|right|Figure 1. The headquarters of [[OPEC]] in Vienna, Austria<ref>By DALIBRI - Own work, CC BY-SA 3.0, [Online], Available: https://commons.wikimedia.org/w/index.php?curid=20982621.</ref>]] | ||
<onlyinclude>When firms agree to [[collusion | collude]], that is they agree to a certain price and quantity for a good or service, they create a '''cartel'''. A cartel is a type of [[oligopoly]].</onlyinclude><ref>A. Goolsbee, S. Levitt and C. Syverson. ‘’Microeconomics’’. New York: Worth Publishers, 2013, pp. 643.</ref> As cartels are formed and operate in secret, it is up to the members of the cartel to keep their agreement in tact. The firms must trust each other not to drop their price to undercut the others or increase their output.<ref>J.Black, N. Hashimzade, and G. Myles. (2009) "Cartel." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-363?rskey=cp2GJC&result=1, 2009 [Aug 14, 2016]</ref> This is difficult to ensure as firms may have different [[production cost]]s and therefore require more of the profit to meet their [[cost]]s. This difference means that there is less control over the [[market]] than there would be under a [[monopoly | monopoly structure]].<ref> | <onlyinclude>When firms agree to [[collusion | collude]], that is they agree to a certain price and quantity for a good or service, they create a '''cartel'''. A cartel is a type of [[oligopoly]].</onlyinclude><ref>A. Goolsbee, S. Levitt and C. Syverson. ‘’Microeconomics’’. New York: Worth Publishers, 2013, pp. 643.</ref> As cartels are formed and operate in secret, it is up to the members of the cartel to keep their agreement in tact. The firms must trust each other not to drop their price to undercut the others or increase their output.<ref>J.Black, N. Hashimzade, and G. Myles. (2009) "Cartel." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-363?rskey=cp2GJC&result=1, 2009 [Aug 14, 2016]</ref> This is difficult to ensure as firms may have different [[production cost]]s and therefore require more of the profit to meet their [[cost]]s. This difference means that there is less control over the [[market]] than there would be under a [[monopoly | monopoly structure]].<ref> "A Dictionary of Economics" entry: cartel, published Oxford University Press, 2013. Edited by John Black, Nigar Hashimzade, and Gareth Myles Online version accessed [August 17th, 2017].</ref> | ||
Cartels can be legal, illegal, national or international and can emerge in almost any market from the market for steel to the market for cocaine (as an example).<ref>J.Black, N. Hashimzade, and G. Myles. (2009) "International Cartel." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-3718?rskey=cp2GJC&result=2, 2009 [Aug 14, 2016]</ref> The [[OPEC | Organization of Petroleum Exporting Countries]] is one such example of an [[international cartel]]. The governments of the OPEC countries agreed to coordinate with petroleum firms (both state owned and private) in order to manipulate the world wide oil [[supply]] and therefore the price of [[crude oil | oil]]. OPEC has trouble cooperating, the 12 countries are not always able to coordinate policies to ensure their control over the market due to a large number of political and economic factors.<ref>A. Goolsbee, S. Levitt and C. Syverson. ‘’Microeconomics’’. pp. 445-446.</ref> Often times [[anti-trust legislation]] is put into place by governments to break up these cartels. | Cartels can be legal, illegal, national or international and can emerge in almost any market from the market for steel to the market for cocaine (as an example).<ref>J.Black, N. Hashimzade, and G. Myles. (2009) "International Cartel." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-3718?rskey=cp2GJC&result=2, 2009 [Aug 14, 2016]</ref> The [[OPEC | Organization of Petroleum Exporting Countries]] is one such example of an [[international cartel]]. The governments of the OPEC countries agreed to coordinate with petroleum firms (both state owned and private) in order to manipulate the world wide oil [[supply]] and therefore the price of [[crude oil | oil]]. OPEC has trouble cooperating, the 12 countries are not always able to coordinate policies to ensure their control over the market due to a large number of political and economic factors.<ref>A. Goolsbee, S. Levitt and C. Syverson. ‘’Microeconomics’’. pp. 445-446.</ref> Often times [[anti-trust legislation]] is put into place by governments to break up these cartels. | ||
Revision as of 20:27, 17 August 2017
When firms agree to collude, that is they agree to a certain price and quantity for a good or service, they create a cartel. A cartel is a type of oligopoly.[2] As cartels are formed and operate in secret, it is up to the members of the cartel to keep their agreement in tact. The firms must trust each other not to drop their price to undercut the others or increase their output.[3] This is difficult to ensure as firms may have different production costs and therefore require more of the profit to meet their costs. This difference means that there is less control over the market than there would be under a monopoly structure.[4]
Cartels can be legal, illegal, national or international and can emerge in almost any market from the market for steel to the market for cocaine (as an example).[5] The Organization of Petroleum Exporting Countries is one such example of an international cartel. The governments of the OPEC countries agreed to coordinate with petroleum firms (both state owned and private) in order to manipulate the world wide oil supply and therefore the price of oil. OPEC has trouble cooperating, the 12 countries are not always able to coordinate policies to ensure their control over the market due to a large number of political and economic factors.[6] Often times anti-trust legislation is put into place by governments to break up these cartels.
For More information see OPEC.
See Also
References
- ↑ By DALIBRI - Own work, CC BY-SA 3.0, [Online], Available: https://commons.wikimedia.org/w/index.php?curid=20982621.
- ↑ A. Goolsbee, S. Levitt and C. Syverson. ‘’Microeconomics’’. New York: Worth Publishers, 2013, pp. 643.
- ↑ J.Black, N. Hashimzade, and G. Myles. (2009) "Cartel." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-363?rskey=cp2GJC&result=1, 2009 [Aug 14, 2016]
- ↑ "A Dictionary of Economics" entry: cartel, published Oxford University Press, 2013. Edited by John Black, Nigar Hashimzade, and Gareth Myles Online version accessed [August 17th, 2017].
- ↑ J.Black, N. Hashimzade, and G. Myles. (2009) "International Cartel." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-3718?rskey=cp2GJC&result=2, 2009 [Aug 14, 2016]
- ↑ A. Goolsbee, S. Levitt and C. Syverson. ‘’Microeconomics’’. pp. 445-446.