Cartels – Greed is a powerful force
In microeconomics we talk about oligopolies – where a few number of competitors control a market. As long as these competitors do not coordinate prices or market areas, or otherwise conspire to keep other competitors out, they may legally operate in the U.S. On the other hand if they do conspire – collude – they are able to act in a manner similar to a monopolist – setting a price that extracts the highest possible profit from the market.
The lure of these high profits is so strong that otherwise prudent companies are often tempted to collude. Here is a recent example, reported in The New York Times.
Technology
3 Flat-Screen Makers Plead Guilty to Trying to Keep Prices High
By STEVE LOHR
Published: November 13, 2008LG, Sharp and Chunghwa Picture Tubes agreed to cooperate in an antitrust investigation being run by the Justice Department.
Three leading flat-screen producers — LG Display of South Korea, Sharp of Japan and Chunghwa Picture Tubes of Taiwan — pleaded guilty and agreed to pay a total of $585 million in criminal fines for their role in fixing the price of liquid-crystal display panels.
The resulting fines are certainly substantial, and yet the potential for increased profits must have outweighed the risks of prosecution. And in this day of ubiquitous communication it is hard to imagine that a secret agreement could stay secret forever.
I teach principles of economics courses and a course in the economics of healthcare at Southern Oregon University.
