Discuss why the industries listed in the table might be more prone to the creation of hard-core
cartels than a great many other industries. What sort
of industry structure do you think these industries might be? In terms of economic efficiency
what harm could these cartels do?
Introduction
Cartel refers to an agreement made between rival or competing companies to control the prices
or to control the entry of firms in a particular market. Cartels are formal organizations that may
be made up of buyers or sellers who agree to control selling or buying prices and reduce
production or consumption to influence the prices. (Sullivan & Sheffrin, 2003)
The structures of these companies have enabled them to thrive as monopolies in the market.
Monopolies operate best when the numbers forming the grand collection of companies are few.
The fewer the number of firms operating in a monopoly the easier to control them. The
monopolies that sell commodities are more advantaged than the ones that sell differentiated
CASE STUDY: HARD CORE CARTELS 2
products. Homogenous products make it easier for the member companies to agree on prices or
subsequent price cuts. (Bishop & Walker, 1999)
These companies can develop into hardcore companies as the power and influence of money can
drive them to increase their prices to unaffordable rates. This is mostly because the products or
services they provide are essential to the population. The Germany Power Cables, Spain Sugar,
Australian fire protection and installation devices, Korean military Fuel among other companies
that have the monopoly in such situations and predicaments. (Connor, 2008)
The companies mentioned can develop into hardcore companies if the respective governments do
not set the minimum guidelines for their operations. The structures of such companies make it
easier for them to develop and turnout to be exploitative companies that can shortchange the
economic gains made in a particular country.
The companies mentioned mostly have monopolies as the products they are selling or the initial
capital outlay or the capital required to start such corporations are beyond the means of ordinary
businessmen and it may require the input of a government or a very large public corporation to
consolidate the resources needed to start trading in such corporations.
Companies that control such utilities like power and water have enormous requirements that it’s
not possible to have many competitors in the market. The production cost structures of the
companies involved in the monopolies have a maximizing behavior that’s similar to the other
companies regarding the output and the prices. Most of these companies have also the same
behavior demand.
These companies have organization structures that can reduce the cost of production efficiently
and they can still earn monopoly profits where the market can sustain them. They also have
CASE STUDY: HARD CORE CARTELS 3
added advantage as they do not need any publicity or advertisement as they are mostly known
publicly and their services or products are essential. The inefficient firms can still be able to
survive as competition does not exist.
Cartels in most cases lead to inefficiencies as the products involved have to be sold whether their
quality is deteriorating or expensive as the goods are only available from one source. The
companies in the monopoly mostly cannot maintain uniformity of their products quality
standards. (Sullivan & Sheffrin, 2003)
In terms of economic efficiency, the monopolies create interference in the market structures as
the prices are controlled by the monopolies which lead to inequality in income distribution as the
customers are overcharged for the essential products in the market which leads to the
concentration of wealth in a few hands. This leads discontentment in some sections of the
population that may feel exploited or disadvantaged and may result in revolts or civil
disobedience in a country.
References
Bishop, S. & Walker, M. (1999) Economics of EC Competition Law, Sweet and Maxwell.
Connor, J.M. (2008) Global Price Fixing: 2nd Paperback Edition. Heidelberg: Springer.
Sullivan, A. & Sheffrin, S.M. (2003) Economics: Principles in action . Upper Saddle River, New
Jersey 07458: Pearson Prentice Hall.
