Episode 29: Doomsday and Resource Conservation
Listen
Subscribe
Terry in California writes, “You claim that competition between gas stations keeps prices down, but what if they agree together to fix prices? They can make a killing by banding together...” What Terry is describing is called a cartel, an organization of suppliers for the purpose of price fixing. Economists have recognized for years that cartels don’t work in the long run, or even the short run. Each member faces immense temptation to cheat on the cartel to increase its own profit. Indeed, the cartels that last are precisely the ones that are able to convince the government to enforce their price fixing! A prime example of this is OPEC itself. In the 1970s (PDF), the United States empowered OPEC by sharply restricting American oil production; prior to that, OPEC was plagued with cheating by the member nations.
Listen
Subscribe
Terry in California writes, “You claim that competition between gas stations keeps prices down, but what if they agree together to fix prices? They can make a killing by banding together...” What Terry is describing is called a cartel, an organization of suppliers for the purpose of price fixing. Economists have recognized for years that cartels don’t work in the long run, or even the short run. Each member faces immense temptation to cheat on the cartel to increase its own profit. Indeed, the cartels that last are precisely the ones that are able to convince the government to enforce their price fixing! A prime example of this is OPEC itself. In the 1970s (PDF), the United States empowered OPEC by sharply restricting American oil production; prior to that, OPEC was plagued with cheating by the member nations.
Listen
posted by Len Budney at 6:18 PM
0 Comments:
Post a Comment
<< Home