Aperfect cartel
A perfect cartel, also known as a collusive monopoly, is a theoretical economic concept in which a group of firms in an industry agree to restrict competition in order to maximize their profits. In a perfect cartel, firms coordinate their pricing, production levels, and market share to eliminate competition and maintain monopoly power in the market.
Key characteristics of a perfect cartel include:
1. Agreement among firms: Perfect cartels require explicit or implicit agreements among participating firms to coordinate their actions and restrain competition. These agreements could involve price-fixing, production quotas, market allocation, or other collusive strategies.
2. Joint decision-making: Cartel members make decisions collectively to allocate market share, set prices, and coordinate production levels. This ensures that each member follows the agreed-upon actions and avoids engaging in competitive behavior.
3. Barrier to entry: Cartels often establish barriers to entry to prevent new firms from entering the market. This could involve controlling key resources or engaging in predatory pricing to deter competition.
4. Stability: Perfect cartels aim to maintain long-term stability by enforcing strict rules and punishments for members who deviate from the agreement. This helps sustain high prices and suppress market competition.
5. Economic rent: By restricting competition, cartels can generate economic rent, which refers to the extra profit earned above the normal competitive level. This allows cartel members to enjoy higher profits and share the rent among themselves.
It's important to note that perfect cartels are illegal in most countries as they directly harm consumer welfare and reduce overall economic efficiency. Antitrust laws and regulatory bodies are in place to detect, investigate, and prosecute any collusive behavior.