Economics Dictionary of ArgumentsHome
| |||
|
| |||
| Cartels: In economics, a cartel is an association of independent businesses or organizations that collude to manipulate the price of a product or service. By controlling supply or setting prices, cartels can artificially inflate prices and reduce consumer surplus. See also Markets, Price._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
| Author | Concept | Summary/Quotes | Sources |
|---|---|---|---|
|
Murray N. Rothbard on Cartels - Dictionary of Arguments
Rothbard III 636 Cartels/Rothbard: (…) is not monopolizing action a restriction of production, and is not this restriction a demonstrably antisocial act? Let us first take what would seem to be the worst possible case of such action: the actual destruction of part of a product by a cartel. This is done to take advantage of an inelastic demand curve and to raise the price to gain a greater monetary income for the whole group. >Elasticity, >Demand/Rothbard. We can visualize, for example, the case of a coffee cartel burning great quantities of coffee. In the first place, such actions will surely occur very seldom. Actual destruction of its product is clearly a highly wasteful act, even for the cartel; it is obvious that the factors of production which the growers had expended in producing the coffee have been spent in vain. Clearly, the production of the total quantity of coffee itself has proved to be an error, and the burning of coffee is only the aftermath and reflection of the error. Yet, because of the uncertainty of the future, errors are often made. Man could labor and invest for years in the production of a good which, it may turn out, consumers hardly want at all. If, for example, consumers' tastes had changed so that coffee would not be demanded by anyone, regardless of price, it would again have to be destroyed, with or without a cartel. Error is certainly unfortunate, but it cannot be considered immoral or antisocial; nobody aims deliberately at error. If coffee were a durable good, it is obvious that the cartel would not destroy it, but would store it for gradual future sale to consumers, thus earning income on the "surplus" coffee. >Durable goods/Rothbard, >Consumer goods/Rothbard. Rothbard III 637 Free market: The whole concept of "restricting production," then, is a fallacy when applied to the free market. In the real world of scarce resources in relation to possible ends, all production involves choice and the allocationof factors to serve the most highly valued ends. In Short, the production of any product is necessarily always "restricted." Such "restriction" follows simply from the universal scarcity of factors and the diminishing marginal utility of any one product. But then it is absurd to speak of "restriction" at all.(1) Rothbard: We cannot, then, say that the cartel has “restricted production.” Rothbard III 638 If there are anticartelists who disagree with this verdict and believe that the previous structure of production served the consumers better, they are always at perfect liberty to bid the land, labor, and capital factors away from the jungle-guide agencies and rubber producers, and themselves embark on the production of the allegedly “deficient” 40 million pounds of coffee. Since they are not doing so, they are hardly in a position to attack the existing coffee producers for not doing so. As Mises succinctly stated: „Certainly those engaged in the production of Steel are not responsible for the fact that other People did not likewise enter this field of production.... If somebody is to blame for the fact that the number of people who joined the voluntary civil defense organization is not larger, then it is not those who have already joined but those who have not.“ Rothbard III 640 Free market/Rothbard: Criticism of steel owners for not producing "enough" steel or of coffee growers for not producing "enough" coffee also implies the existence of a caste system, whereby a certain caste is permanently designated to produce Steel, another caste to grow coffee, etc. Only in such a caste society would such criticism make sense. Yet the free market is the reverse of the caste system; indeed, choice between alternatives implies mobility between alternatives, and this mobility obviously holds for entrepreneurs or lenders with money to invest in production. Rothbard III 642 VsCartels: A common argument holds that cartel action involves collusion. For one firm may achieve a "monopoly price" as a result of its natural abilities or consumer enthusiasm for its particular product, whereas a cartel of many firms allegedly involves "collusion" and "conspiracy." >Monopolies. RothbardVs: These expressions, however, are simply emotive terms designed to induce an unfavorable response. What is actually involved here is co-operation to increase the incomes of the producers. For what is the essence of a cartel action? Individual producers agree to pool their assets into a common lot, this single central organization to make the decisions on production and price policies for all the owners and then to allocate the monetary gain among them. But is this process not the same as any sort ofjoint partnership or theformation ofa Single corporation? What happens when a partnership or corporation is formed? >Corporations/Rothbard. Rothbard III 644 Merger/cartel/Rothbard: Yet an industry-wide merger is, in effect, a permanent cartel, a permanent combination and fusion. On the other hand, a cartel that maintains by voluntary agreement the separate identity of each firm is by nature a highly transitory and ephemeral arrangement and, (…) generally tends to break up on the market. In fact, in many cases, a cartel can be considered as simply a tentative step in the direction of permanent merger. And a merger and the original formation of a corporation do not (…) essentially differ. The former is an adaptation of the size and number of firms in an industry to new conditions or is the correction of a previous error in forecasting. The latter is a de novo attempt to adapt to present and future market conditions. >Mergers/Rothbard. Rothbard III 651 Instability: Analysis demonstrates that a cartel is an inherently unstable form of operation. Ifthe joint pooling of assets in a common cause proves in the long run to be profitable for each of the individual members of the cartel, then they will act formally to merge into one large firm. The cartel then disappears in the merger. On the other hand, if the joint action proves unprofitable for one or more members, the dissatisfied firm or firms will break away from the cartel, and (…) any such independent action almost always destroys the cartel. The cartel form, therefore, is bound to be highly evanescent and unstable. Rothbard III 652 If the cartel does not break up from within, it is even more likely to do so from without. To the extent that it has earned unusual monopoly profits, outside firms and outside producers will enter the same field of production. Outsiders, in short, rush in to take advantage of the higher profits. Rothbard III 657 The problem of „The One Big Cartel“: (…) the free market placed definite limits on the size of the firm, i.e., the limits of calculability on the market ((s) see above III 612). In order to calculate the profits and losses of each branch, a firm must be able to refer its internal operations to external markets for each of the various factors and intermediate products. When any of these external markets disappears, because all are absorbed within the province of a single firm, calculability disappears, and there is no way for the firm rationally to allocate factors to that specific area. The more these limits are encroached upon, the greater and greater will be the sphere of irrationality, and the more diffcult it will be to avoid losses. One big cartel would not be able rationally to allocate producers' goods at all and hence could not avoid severe losses. Consequently, it could never really be established, and, if tried, would quickly break asunder. Rothbard III 660 Production factors: What about the factors? Could not their owners be exploited by the cartel? In the first place, the universal cartel, to be effective, would have to include owners of primary land; otherwise whatever gains they might have might be imputed to land. To put it in its strongest terms, then, could a universal cartel of all land and capital goods "exploit" laborers by systematically paying the latter less than their discounted marginal value products? Could not the members of the cartel agree to pay a very Iow sum to these workers? Ifthat happened, however, there would be created great opportunities for entrepreneurs either to spring up outside the cartel or to break away from the cartel and profit by hiring workers for a higher wage. This competition would have the double effect of (a) breaking up the universal cartel and (b) tending again to yield to the laborers their marginal product. As long as competition is free, unhampered by governmental restrictions, no universal cartel could either exploit labor or remain universal for any length of time.(3) >Monopolies/Rothbard. 1. In the words of Professor Mises: „That the production of a commodity p is not larger than it really is, is due to the fact that the complementary factors of production required for an expansion were employed for the production of other commodities. . . . Neither did the producers of p intentionally restrict the production of p. Every entrepreneur’s capital is limited; he employs it for those projects which, he expects, will, by filling the most urgent demand of the public, yield the highest profit. An entrepreneur at whose disposal are 100 units of capital employs, for instance, 50 units for the production of p and 50 units for the production of q. If both lines are profitable, it is odd to blame him for not having employed more, e.g., 75 units, for the production of p. He could increase the production of p only by curtailing correspondingly the production of q. But with regard to q the same fault could be found by the grumblers. If one blames the entrepreneur for not having produced more p, one must blame him also for not having produced more q. This means: one blames the entrepreneur for the fact that there is a scarcity of the factors of production and that the earth is not a land of Cockaigne.“ (Mises, Planning for Freedom, pp. 115–16) 2. Ibid. p. 115. 3. Cf. Mises, Human Action New Haven, Conn.: Yale University Press, 1949. Reprinted by the Ludwig von Mises Institute, 1998., p. 592._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
||
Authors A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Concepts A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
