10.2 Cartels and Monopoly Power

So far in our discussion, a monopoly has meant that there is only one firm
in an industry. A second way a monopoly can arise is for several firms in
an industry to agree to cooperate with one another, eliminating
competition among themselves. In this case, they would band together
and behave as if they were a single seller with the objective of
maximizing their joint profits. Such a group of firms is called a cartel
The firms can agree among themselves to restrict their total output to the
level that maximizes their joint profits.

Some of the best examples of cartels come from history. In the United
States in the last half of the nineteenth century, cartels existed in the steel
and oil industries. These cartels were so successful in restricting output
and elevating prices that much of current U.S. anti-trust policy dates from
that time. As we will see in Chapter 12 , U.S. and Canadian policy has
been quite effective at preventing the creation of large cartels that would
otherwise possess considerable market power.

As a result of successful policies aimed at preventing the creation of
domestic cartels, the best current examples of cartels are ones that operate
in global markets and are supported by national governments. The
Organization of the Petroleum Exporting Countries (OPEC) is perhaps
the best-known cartel in the world. This cartel first came to prominence
when, in 1973, its members collectively agreed to restrict their output of

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