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In a truly free market, companies aren't supposed to do anything and are more than free enough to coordinate at any level they want if it is beneficial to them
by vikramkr 7y ago
In a truly free market, companies aren't supposed to do anything and are more than free enough to coordinate at any level they want if it is beneficial to them with the only checks on coordination and all being game theory situations about the value of the profits that come from breaking away from and undercutting the cartel versus the ensuing loss of profits from the price war or from "punishment" by other cartel members. In a regulated market though, sure, companies aren't supposed to coordinate at that level in ways that violate the law, but this doesn't violate the law.
- kyshoc 7y ago> In a truly free market, companies aren't supposed to do anything [...] In a regulated market though... Free market !== unregulated market. In order for an unregulated market to be a free market, perfect competition is required[0], otherwise you get market failure. In the real world, we use laws to discourage behavior that leads to market failure. [0]: https://en.wikipedia.org/wiki/Free_market#Perfect_competition_and_market_failure https://en.wikipedia.org/wiki/Free_market#Perfect_competitio...
- vikramkr 7y agoRight, and in addition free markets != anything seen in reality. There's no such thing as perfect competition or a real life free market since the textbook definition of a free market requires both no monopoly power and no government intervention. Basically none of your nice econ 101 graphs of perfect competition and everything apply in any sort of meaningful way because of all the absurd assumptions necessary to make them work. If there are two bakers that are producing identical bread in every way, they still wont be in perfect competition since one of them will be physically closer to you which makes for decreased travel time.