Microeconomics: Principles, Problems, & Policies, 20th Edition

Published by McGraw-Hill Education
ISBN 10: 0077660811
ISBN 13: 978-0-07766-081-9

Chapter 19 - Antitrust Policy and Regulation - Review Questions: 4

Answer

c. The legal cartel theory of regulation

Work Step by Step

A Cartel is formed when a group of competing firms makes a formal agreement to cease competing. Thus, they either control the price of the goods by establishing the amounts of output that each cartel has to produce or by geographically dividing their areas of monopoly. Since private cartels are illegal in the United States, in some cases, the firms seek government regulations as it can have a similar effect on the prices and competition similar to forming cartels. This will also ensure stable profits to the companies.
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