quota and the quotas are allocated among existing producers, entry is
successfully prevented. This approach is used to limit the number of
taxicabs in many cities as well as the quantity of milk produced by
Canada’s dairy farmers. Although in the case of taxis the creation of Uber
and Lyft have seriously threatened the entrenched market power in some
cities. Governments also directly own some firms and prohibit
competition from the private sector. In most Canadian provinces, for
example, retail liquor sales are permitted only by government-owned
establishments.
As we mentioned earlier, for many years DeBeers was able to control a
large fraction of the world’s annual sales of rough diamonds. But
restricting entry into the diamond industry is challenging. In the diamond
industry, of course, “entry” means the development of new diamond
mines. In 2004, two new mines in the Northwest Territories reached full-
scale production. The combined annual output of rough diamonds from
the Ekati and Diavik mines is about 9 percent of total world production.
The owners of the Ekati and Diavik mines, however, market their
diamonds independently rather than going through DeBeers. With entries
such as this, combined with some Russian and Australian producers also
choosing to sell their diamonds independently, DeBeers is faced with the
challenge of keeping diamond prices supported above competitive levels.
The challenges faced by cartels—both for enforcing output restrictions
and for restricting entry—involve conflicting incentives between
individual firms. To analyze these sorts of problems more completely,