http://economictimes.indiatimes.com/News/Economy/Policy/Govts_turn_up_the_heat_on_business_cartels/articleshow/1900801.cms
Governments are cracking down on cartels and the effects are noticeable. In international cartels the over-charges were estimated to be over 20-30%! This really stinks for developing countries... in 1997 World Bank estimated that $81.1 billion of developing countries' imports were subject to price fixing conspiracies. Think how much better off they would be with that $81.1 billion dollars! With tougher anti-cartel policies, price drops have been witnessed globally. For example, the UK has seen a 40-60% drop in the envelope industry.
Cartels arise especially in industries with homogenous products with few suppliers and many buyers(cement cartel was mentioned numerous times in the article as an example).
The more I read about cartels, the angrier i get. These firms get together with other firms and devise ways to cheat their clients and get more money. Obviously it has to be analyzed deeper than that... but I don't understand how if the cartels main objective is to fix price it would be able to stay stable for very long... more firms are going to want to get involved and it will become chaotic within the cartel. A lot of thinking must go into maintaining a cartel and keeping it from being discovered by the competition authorities(which i did not know existed!). Why not just stick with a fair price and avoid the risk of HUGE fines or even jail time which is enforced in some countries??
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2 comments:
cartels exist for things like envelopes? weird. i guess i can't really fathom spending lots of time figuring out the best way to cheat people on envelope prices. have you nothing better to do with your time?!?!
anyway, yes, i agree that cartels are really bad. and i find it ironic that, given the US's traditionally anti-monoply, anti-cartel stance, we buy so much from OPEC, arguably the most well-known cartel.
The Envelope Cartel...I can safely say I've never heard of that one. how funny! "Join us or face the consequences..." lol
Domino's right - it is ironic that we buy from the strongest cartel in the world - and for something that is usually seen as one of the most overall inelastic products we consume.
Fair price and competition does not usually mean large profits. That causes issues for those companies. Mostly, it's a fear of competition.
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