Sunday, August 18, 2013

Cartels And Monopolies Cannot Form In A Free Market.

Since firms face a more elastic demand curve than does an industry the equilibrium forces inherent in the market economy would tend to break any attempt to form a cartel. This is because: if a firm charges a lower price than the cartel price the result would be a significant change in the quantity demanded from the firm (drawing buyers industry-wide) and total revenue would increase for the firm. The increased total revenue is an irresistible incentive, enticing a firm to break the cartel.

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