What affect do cartels have on prices?
1 Answer
In an Oligopoly market structure, cartels - or the alliances of enterprises - will have the power to dictate the movement of prices by manipulating the supply of a particular product.
Explanation:
For example, there are only two or three airlines in a particular country. The owners of those airlines could come together and form a collusion and agree to increase the charges of their services.
The consumers, seeing that they have no other choice left and all of the airlines are charging the same, are forced to pay the higher price.
This is true with the dealers of cement, iron, gold, and especially oil - since there are only a few people who could afford to join those industries.
In his book entitled "An Inquiry into the Nature and Causes of the Wealth of Nations" in 1776, Adam Smith stated his views in the truth about the cartels. He wrote: "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice."
