Study Guide to Man, Economy, and State with Power and Market

124 Study Guide to Man, Economy, and State with Power and Market
2. Cartels and Their Consequences
A. Cartels and “Monopoly Price”
The alleged evil of a cartel is that it restricts output
and thus hampers the achievement of consumers’ sovereignty.
But consider the “worst case” scenario of a cartel
that actually destroys product in order to increase its
profit. Clearly the excess production was a mistake that
will tend not to be repeated; even a cartel would rather
produce the amount it intended to sell, rather than overproduce
and then destroy the excess. The true “waste”
then is not the destroyed product, but rather the scarce
resources that went into the production of the excess
units; once the cartel produces the profit-maximizing
amount in the future, these resources will be channeled
elsewhere.
B. Cartels, Mergers, and Corporations
Those who criticize cartels generally do not view
mergers, let alone the formation of a corporation, as sinister
or inefficient; but what is the essential difference
between these events and the formation of a (voluntary)
cartel?
C. Economics, Technology, and the Size of the
Firm
In a free market, firms will tend to be the optimum
(from the consumers’ point of view) size. On the one
hand, lower unit costs of large-scale production will tend
to increase firm size, but on the other, the overhead costs
of bureaucracy eventually check this trend. The ultimate
limit is the chaos that would ensue if a firm eliminated
the market prices for its inputs and products.