This is why I scrutinize every economic dogma out there. And the one most economists agree is that “cartels are an inherently bad thing”. Now I am searching for a reason that they might be sometimes emerging in a free market, and Pascal Salin’s paper is very helpful, indeed, thanks for the link, Stranger!
Most “free marketeers” argue that there is no such thing as a “free market cartel.”
The market would do this regardless of the existence of a cartel. When prices are high, oil producers would have an incentive to supply more oil, thereby reducing prices. When oil prices are low, oil producers would have an incentive to cut supply and save oil fields for future production.
Though I know of no free market economists who have argued that cartels could be a positive thing, I do know that Schumpeter and a few of his followers have argued that a free market monopoly could have some positive benefits. Personally, I don’t believe that a true free market monopoly is possible, but it’s possible for certain firms to have a large degree of monopoly power in a free market.* In such a case, consumers might pay higher prices than they would otherwise, but this would pay off through higher profits and investment, which would in turn lead to higher levels of economic growth.
*By that, I mean a company that controls a large percentage of the market and has a large economy of scale unmatched by competitors. This way, it is able to garnish much higher profits than competitors, since it produces goods at lower prices than competitors but sells them at the same price that they do.
and the difference between a cartel and a strategic partnership is what exactly?
Sure they should. In a free market (no coercion) they could do anything they would like. But, who will be the enforcer when one of them cheats? At that point, it’s no longer a free market.
Why wouldn’t they do this under free market conditions? Why do you assume that firms would be driving each other into bankruptcy in a free market? Because Warren Buffet observes this happening in our interventionist economy? I would contend that the capital structures of these companies would be more leveraged under cartel / central banking conditions than under free market conditions. Sure, some could go bankrupt, I just don’t see why it would necessarily be so under a free market. To address this, we would have to bring the distortions of the central bank into the discussion, which is beyond the intent of this thread, I think.
The coffee market in Germany is very close to a free market. Every entrepreneur with enough capital could exit or enter it without too much government interference (there are of course some regulations for supplying foodstuff, but that shouldn’t be too much of a burden). I’m sure, there are also many examples of long-lasting pice fixing agreements in the US, without government preventing additional competition.
So how is the coffee market in Germany a cartel?
Prove your statement.
http://www.bloomberg.com/apps/news?pid=20601100&sid=aoArkZmE_pjs
German coffee cartel.
The NFL and music industry are pretty much protected from anti-trusts.
They might use contracts.
Uh, my point is that, in a free market, that is, without antitrust, they would be allowed to cooperate. But with our current antitrust laws, “price fixing” is outlawed and hence, producers cannot cooperate.
Above, I’ve posted some links that reported on the German coffee cartel. In short, German coffee producers Dallmayr, Tchibo and Melitta (the three largest) fixed prices. Dallmayr could raise its price for about €2 per kilogram of coffee, because of cartelization.
All of those articles basically state “the three largest German coffee companies have increased prices in tandem.” How does that prove that they are part of a cartel? What would prices be for their products in a free, competitive market?
“Kraft Foods Inc.’s German Jacobs coffee unit wasn’t fined because it disclosed the price fixing activities to the regulator, according to two people familiar with the probe”
http://www.bloomberg.com/apps/news?pid=20601100&sid=aoArkZmE_pjs
one valid use of a cartel imo is to battle foreign cartels, and even whole countries. japan’s government colluded with their corporations and devalued their currency. they, in effect, declared economic war on us, forcing their whole population to sacrifice in order to subsidize their exports. our industries couldn’t fight back because they werent allowed to work together. milton was wrong when he said it would work itself out in the end. it only ended with us losing all our industries. the feds said its ok, we’ll protect you. they didnt. the chinese did it to us with permanently devalued and pegged currencies. they declared economic war on us. we lost everything.
What price fixing activity? Of course bureaucrats will be running around and pointing fingers at businessmen, since that’s their job. And of course bureaucrats will be running around pointing fingers at some businessmen while getting bribes from others, since that’s one of their job perks.
In order to legitimately show that there was price fixing activity, you have to prove that the businesses in question actually increased prices above their market level by restricting supply.
You’re making the mistake of assuming exports are a good thing. If the Chinese and Japanese want to provide cheap goods to us at their own expense, they can be my guests.
Imagine if somebody wanted to work for you at a very low cost (or even for free). Did he declare economic war on you?
That’s a good one. I’ll remember it.
@ Michael, you’re talking about trade as a mercantilist would, not as a free marketer would. Trade is not a zero sum game.
that is my point, china and japan are mercantilists, and to defend against it, our industries should be allowed to organize into defensive cartels. that is what this thread is about?
@DD5 this isn’t that simple. this is the real word, not a theory. when a whole country coordinates its economy with the sole purpose to destroy yours piece by piece with laser like precision then yes, that’s economic war imo. what single industry can withstand that? even if our economy were unencumbered by high taxes and crippling regulations, do you really think it could survive this type of onslaught unless it was allowed to organize a defensive cartels too?
So you’re saying if someone else is mercantilist, then we should abandon free markets?
No.
I love when people pull this. At LvMI, the a priori method is usually a given. That is if something is axiomatically true, than no appeals to the “real world” can make it untrue.
If it is true in the micro, it must be true in the macro as the macro is only the aggregate of the micro (methodological individualism).
So if it is not economic war when someone works cheaply for you, then it is not economic war when a country sells its good cheaply to you. A country is only the aggregate of its citizens individual actions, nothing more.
I don’t think you understand. Cheap imports are a good thing, not a bad thing. Cheap imports means consumers have a higher purchasing power means Americans have higher living standards. The Chinese and Japanese governments are doing us a favor by trying to make their GDP numbers look good based on exports.