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> What stops the new units from being added to the cartel? Cartel members would be the best positioned to acquire them. If competition is unrestricted, cartels

by hbrn 4y ago

> What stops the new units from being added to the cartel? Cartel members would be the best positioned to acquire them. If competition is unrestricted, cartels are unstable structures. It only takes one member unwilling to join cartel to ruin them. That's why drug cartels are killing each other and smaller competitors. There are exceptions, but that's where antitrust laws come in.

munificent 4y ago
> It only takes one member unwilling to join cartel to ruin them. It only takes one member in an enviroment protected from all other actions of the cartel to ruin them. If all economic actors only interacted in the marketplace itself, then, yes, cartels are unstable. But businesses are not spherical cows in a vacuum. In practice, cartels can exert all sorts of forces to insulate themselves. While most don't go to the extreme of drug cartels which you should note are quite adept at maintaining their stability, they can still to plenty without resorting to violence. Off the top of my head: * Economies of scale, barriers of entry, and other Econ 101 stuff that privilege large entrenched actors over upstarts. * Threatening to stop giving contracts to builders if they work with the competitor. * Threat of social sanctions since many of the people who run these businesses all know each other and play together. Pretty awkward to break up a cartel at 10am and then go to your regularly scheduled golf game with its owners at 4pm. * Buying smaller competitors outright before they defect.
- hbrn 4y ago
  > Economies of scale, barriers of entry, and other Econ 101 stuff that privilege large entrenched actors over upstarts. All of those already exist without cartels. > Threatening to stop giving contracts to builders if they work with the competitor This assumes that pool of builders is somehow limited, but if that's the case, builders have leverage. How exactly do you see this conversation going? - If you work for our competitor, we won't give you any contracts! - But he can just hire other builders. - He can't, you're the only builders in the area. - Oh. Well then, how about we go work for both you and your competitor, and you have to pay us more. What are you going to do, we're the only builders in the area. > Threat of social sanctions since many of the people who run these businesses all know each other and play together There's potentially billions of dollars to chase, but what's stopping you is that this will piss of your golf buddies. Right. > Buying smaller competitors outright before they defect You can't just assume you can buy any company. Why don't drug cartels just "buy" each other? Surely it's preferable to non-stop murdering.
  - danaris 4y ago
    > All of those already exist without cartels. Well, sure, but in an environment with a cartel, they will privilege the cartel over other actors in the system. > This assumes that pool of builders is somehow limited And it is. It's limited to the builders who operate within the geographic area the cartel operates in. In general, you're just dismissing these very practical criticisms with more "idealized market theory" that only works when it doesn't have to take real frictions into account, or by just saying what boils down to "nuh-uh".

by hbrn 4y ago

munificent 4y ago

> It only takes one member unwilling to join cartel to ruin them. It only takes one member in an enviroment protected from all other actions of the cartel to ruin them. If all economic actors only interacted in the marketplace itself, then, yes, cartels are unstable. But businesses are not spherical cows in a vacuum. In practice, cartels can exert all sorts of forces to insulate themselves. While most don't go to the extreme of drug cartels which you should note are quite adept at maintaining their stability, they can still to plenty without resorting to violence. Off the top of my head: * Economies of scale, barriers of entry, and other Econ 101 stuff that privilege large entrenched actors over upstarts. * Threatening to stop giving contracts to builders if they work with the competitor. * Threat of social sanctions since many of the people who run these businesses all know each other and play together. Pretty awkward to break up a cartel at 10am and then go to your regularly scheduled golf game with its owners at 4pm. * Buying smaller competitors outright before they defect.

hbrn 4y ago
> Economies of scale, barriers of entry, and other Econ 101 stuff that privilege large entrenched actors over upstarts. All of those already exist without cartels. > Threatening to stop giving contracts to builders if they work with the competitor This assumes that pool of builders is somehow limited, but if that's the case, builders have leverage. How exactly do you see this conversation going? - If you work for our competitor, we won't give you any contracts! - But he can just hire other builders. - He can't, you're the only builders in the area. - Oh. Well then, how about we go work for both you and your competitor, and you have to pay us more. What are you going to do, we're the only builders in the area. > Threat of social sanctions since many of the people who run these businesses all know each other and play together There's potentially billions of dollars to chase, but what's stopping you is that this will piss of your golf buddies. Right. > Buying smaller competitors outright before they defect You can't just assume you can buy any company. Why don't drug cartels just "buy" each other? Surely it's preferable to non-stop murdering.
- danaris 4y ago
  > All of those already exist without cartels. Well, sure, but in an environment with a cartel, they will privilege the cartel over other actors in the system. > This assumes that pool of builders is somehow limited And it is. It's limited to the builders who operate within the geographic area the cartel operates in. In general, you're just dismissing these very practical criticisms with more "idealized market theory" that only works when it doesn't have to take real frictions into account, or by just saying what boils down to "nuh-uh".