Case Study Hard Core Cartel

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CASE STUDY: HARD CORE CARTELS

Cartel refers to a group of firms producing substitute goods that collude or conspire to increase prices and its own profits, by lowering production and/or sharing markets or customers. Figure 1 below shows examples of recent price fixing cases from various countries.

(Figure 1)

These industries either have a market structure in which a small number of inter-dependent firms dominating the industry, that of a oligopoly, or are firms that is the only seller of a good or service that does not have a close substitute, characteristics of a monopoly.

Oligopoly and/or monopoly arise for four main reasons: government restriction to the entry of more than one firm into a market, an individual firm commands control over a key resource essential to produce a good, there are externalities in supplying the good and economies of scale are so large that one firm has a natural monopoly. A monopoly and/or oligopoly can produce lesser of the goods and charge at a higher price as compared to a competitive market industry producing the same good, due to the need to stay competitive. This usually leads to lower costs, lower prices, and consumer demanded goods. However, due a market structure like that these industries, price conditions are such that competition is likely to lead to higher prices. Furthermore, governments intervene by regulating these industries and externalities, provide public goods, control the use of common resources and reduce income inequality.

It is uncommon for monopolies to be fined with the exception, such as Microsoft, for illegal monopolistic practices. However, fines for companies operating in oligopoly markets that abuse market power through collusive agreements are more common. Traditionally, the power cable industries in the European Union have been state-owned monopolies. During the 1990s, countries such as Germany, Sweden and the United Kingdom, privatized these...
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