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CARTEL: A formal agreement between businesses in the same industry, usually on an international scale, to get market control, raise the market price, and otherwise act like a monopoly. A cartel tends to be unstable because the artificially high prices it sets gives each member of the cartel an incentive to "cheat" with a slightly lower price. When only one member of the cartel lowers the price, it can make oodles of profit by taking customers away from the other members. If they all cheat, the cartel falls apart. While cartels damage efficiency, they're power is often short-lived because of this cheating. Like collusion and other techniques of market control, cartels are illegal in the United States.

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Lesson 19: Monopolistic Competition | Unit 4: Analysis Page: 16 of 22

Topic: Efficiency And Excess Capacity <=PAGE BACK | PAGE NEXT=>

  • The market control of monopolistic competition firms has two important implications:

  • First, resources are not used efficiently.
  • Second, as previously noted, firms have excess capacity.

    • Efficiency: Resources are used efficiently when price is equal to marginal cost.

    • Excess Capacity: In the long run, efficient use of capital is achieved at the minimum efficient scale.


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PRICE MAKER

A buyer or seller that possess sufficient market control to affect the price of the good. From the selling side of the market, a monopoly is the best example of a price maker. From the buying side of the market, a monopsony is also a price maker. This is one of two alternatives related to control over price. The other is price taker. Price maker is also termed price setter.

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Today, you are likely to spend a great deal of time driving to a factory outlet trying to buy either rechargeable batteries or a rechargeable battery for your computer. Be on the lookout for neighborhood pets, especially belligerent parrots.
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Helping spur the U.S. industrial revolution, Thomas Edison patented nearly 1300 inventions, 300 of which came out of his Menlo Park "invention factory" during a four-year period.
"To sit back and let fate play its hand out, and never influence it, is not the way man was meant to operate."

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