two firm cartel ecomomics output

two firm cartel ecomomics output

The Impact of Cartels on Economic Output

1. Introduction

Also in the current legal literature, “cartels” seem to be synonymous with the abuse of a dominant position and restrictive practices that aim to favor sales to the detriment of consumers. And to a lesser degree, anti-competitive practices such as: communications/bidding collusions, price-fixing agreements, division of markets, exploitation of existing exchanges. They seem to belong to the arsenal of anti-competitive initiatives, which only economic analysis can consider as a breach of the competition rules of art 102 and 101 TFEU, or of unfair trading practices 101,104 civil code. The following paper would try to establish more clearly the importance of the agreement for the illicit qualification of the practice, with particular consideration to the economic mechanisms that define the different types of anti-competitive conducts, arguing about how to adopt different legal criteria for interventions depending on the economic outcome and assuming that the difficulty of discovering the agreement justifies a policy of certifying decisions against anti-competitive conduct.

Going back to the time of the Greeks, the mere utterance of the word cartel, banned by law in many countries at the time, had much more to do with strength than commercial agreements, without however evoking any open conflict among the opponents. History usually brings together merchants who agree to fix prices or engage in unfair competition, but it is the economic damage done to small competitors that concerns historians and not the legal consequences of a company or group of companies that can be either sued, reported, or judged.

2. Definition of Cartels

The second is that a cartel can control entry to the market. This control would allow the cartel to limit potential entrants to the market by restricting outsiders’ ability to enter the market. Third, the cartel can rig all the markets in the country or even the world. When this happens, the output is less. The price effects and quantity effects the regulations pose can “minimize socio-economic welfare”.

The definition of cartels varies depending on the policy or the law. This is so because of the different approaches they pose. The antitrust laws of the US define a monopoly as a monopoly which requires a great market share. A similar definition is used for cartels. Cartels are defined as a secretive association of manufacturers or distributors who are striving for control of the market. This control imposes several abilities to the cartel. The first is that a cartel can control price, demand, and even the quantity and quality of a good.

3. The Effects of Cartels on Economic Output

The question is now whether the productivity gains are outweighed by the consumer disutility and the distribution of rent. The economic output is boosted by, among other things, the increase in investor demand which causes share prices to rise, and by capital losses due to the debt reduction of cartel members. Overall, the increase in economic activity leads to an increase in Gross Domestic Product. A cartel whose objective is to raise prices for economic output in Switzerland tends to have a greater negative effect than the positive one. It is described in this article. The microeconomic distortions that cartels trigger economically often feel purely direct macroeconomic in detail are related to the feedback effects between consumers, whose purchasing power is diluted by the price cap increase.

The impact of cartels on economic output: Economic analysis has paid relatively little attention to the ways in which cartels can affect economic activity more generally. Simon Kirkpatrick shows how cartels do just that and studies the effect in Switzerland’s case. The negative impact of a cartel whose aim is to raise the price on economic activity is well known. The negative effect is twofold. Firstly, consumers have an incentive to switch their beverages where necessary. This results in positive consumer disutility, which is responsible for a decline in consumer welfare. Secondly, as a result of the price increase, the profits of the cartel members rise over time compared to the status quo.

4. Case Studies: Cartels and Economic Output

Aluminum price rose by around 30 percent between 2004 and 2006, which was attributed to market problems that had to do with market manipulations. Afterward, the European Commission imposed fines on 17 EU aluminum electrolysis plants for having operated a market sharing cartel for more than 10 years. In 2005, the Lynworth Butter Board pleaded guilty to anticompetitive practices. They fixed prices and limits on production, which raised prices of the butter and cost final consumers.

The concrete case of endives has been presented in Lopez’s book (2013). Paying the fine seems productive, at least from the short-term perspective, because of the increasing revenues of the producers from the very high, at least compared to the production costs, prices of the products. Lopez’s interesting point first focuses on the measures of harm/impact that can reveal economic distortions related to the cartel. She relies on the welfare losses discussion of Bruguière, Gavan, and Pouyet (2009) to argue that observable intermediaries (well-documented retailers and wholesalers) have been harmed largely because they had made illegal gains in period 3. They used those illicit gains to increase their demand in period 4, which resulted in too high prices that affected the final consumers who lived between the second and the third period. The structural and behavioral arguments of the European Union of Competition (henceforth EUC) and general economics led her to show that the anti-competitive move of the inputs purchase by the suppliers had not only generated price effects but also quantity ones whose magnitude approach those of the price impact.

5. Conclusion

Fourth and finally, as the market became less competitive or as the cartel became more willing to collude, the magnitude of the loss was greater. Thus, it would appear that the probability that a cartel may injure production went up if there were fewer buyers than in a perfectly competitive market. Additionally, we showed that this probability rose faster if production reasons were strategically fixed. We validated and reinforced our results using a hypothetical multi-participant competition argument. After examining the effects of erratic demand and cost changes and the persistence of cartel activities, we suggested antitrust/competition policies or regimes. From our policy recommendations, we were also able to develop some practical welfare implications be it macroeconomists working under stochastic conditions, policymakers who identify with long-term social reliance issues, or public finance experts under budget constraints, to name a few.

To achieve a better understanding of the issue surrounding the impact of cartels on economic output, we developed an analytical market structure model to look at potential equilibrium effects. We allowed the cartel to operate within a simple linear demand, linear cost framework as a complete collusive institution under “price” control or as “quantity” control. Our work showed four things. First, the results were different depending on the type of control. That is, the choice of one type of control was better than the other as market output gap was smaller under “price” control. Second, and related, we found that the market output was lower under “price” control than under “quantity” control. Third, we showed that the minimum price was a maximum under “quantity” control and the maximum price was a minimum under “price” control as countervailing inducement parameters. Further, for both types of collusive institutions, the exact condition that the anticipated short-term loss was at its maximum instead of its minimum still held, showing that in the long-run, the loss could be greater.