The Economics Book

70

MEETINGS OF

MERCHANTS END

IN CONSPIRACIES

TO RAISE PRICES

CARTELS AND COLLUSION

C

ompetition is key to the

efficient working of free

markets. The presence

of several producers in a market

drives production and keeps prices

down as each competes to attract

customers. If there is only a single

supplier—a monopoly—it can

choose to restrict its output and

charge higher prices.

Between these two extremes

sits the oligopoly, where a few

suppliers—sometimes only two or

three—dominate the market for a

particular product. Competition

between producers in an oligopoly

would clearly be in the interests

of the consumer, but there is an

alternative for the producers that

IN CONTEXT

FOCUS

Markets and firms

KEY THINKER

Adam Smith (1723–90)

BEFORE

1290s Wenceslas II, Duke

of Bohemia, introduces laws

to prevent metal ore traders

from colluding to raise prices.

1590s Traders from the

Netherlands collaborate in a

cartel with a monopoly of the

spice trade in the East Indies.

AFTER

1838 French economist

Augustin Cournot describes

competition in oligopolies.

1864 US economist George

Stigler publishes A Theory

of Oligopoly, examining the

problems of maintaining

successful cartels.

1890 The first antitrust law

is passed in the US.