Cartels A market with room for only a few firms If they can get together,reduce output,raise price,profits go up At the higher price,each firm has an incentive to cheat on the agreement Enforcing a cartel agreement by contract is not permitted under current U.S.law But it can be enforced by a regulator who wants to support the cartel Either by controlling prices,as in the case of the Civil Aeronautics Board Or by controlling entry Regulation of trucking and health care required a permit to run a route,build in an area Professional licensing controls the number of doctors,hair braiders,... Cartels • A market with room for only a few firms • If they can get together, reduce output, raise price, profits go up • At the higher price, each firm has an incentive to cheat on the agreement • Enforcing a cartel agreement by contract is not permitted under current U.S. law • But it can be enforced by a regulator who wants to support the cartel • Either by controlling prices, as in the case of the Civil Aeronautics Board • Or by controlling entry • Regulation of trucking and health care required a permit to run a route, build in an area • Professional licensing controls the number of doctors, hair braiders, …