Can someone tell me what this sentence means?

Question

A cartel will put an end to a price war, which is a barbaric form of competition that benefits no one. Thanks ♥

Answer 1

A cartel is a group of producers who all produce the same good (e.g., OPEC is a cartel). The aim of the cartel is frequently to keep the price of the good that the members sell high. For example, OPEC sets quantity limits (quotas) for its members, in order to maintain a higher price for oil than would previal if the members produced quantities greater than their quotas.

A price war is where firms that sell the same good try to increase their market share by charging a lower price than their competitors. If competititors match price cuts, then the price can fall to a very low level.

Answer 2

The person who said it is full of carp. Price wars are a part of free enterprise marketing. There is nothing barbaric about it. If two or more businesses engage in a price war, the consumers benefit because the prices of the products go down. Price wars never last long. Eventually one or more of the warriors decides they cannot lower prices below their costs and expect to survive. With cartels, the only person who benefit are the ones running the cartel. They make the product scarce and push prices artificially high, so the consumer pays and the cartel gets rich. Think about OPEC.

Answer 3

Cartel means that all companies in the market agree that all will keep their prices high. It is hard to arrange if there are only a few companies.

Cartel is better for companies than trying to underprice each other, since it leads to prices very close to costs and no profits.

Cartel is bad for consumers, who face higher prices.

An example of modern cartels is OPEC, which limits oil output thus keeping prices high.
DeBeers in diamonds that somebody mentioned is not really a cartel, it's a monopoly.

Answer 4

This is very supply-side economics opinionated.

A cartel is a group acting together to limit production, control prices etc. OPEC (Oil cartel) in the 1970's is a great example.

A price war is a battle between suppliers to provide the best price; even if it is lower than cost. Using the same example gas stations charging less for their product than they pay for it.

A system in which a supplier must sell at lower than cost will result in bankruptcy and a weaker economy, benefiting no one.

Answer 5

what they mean is that a cartel does not allow free market dynamics. The members in a Cartel, or really the strongest member, creates an artificial point of supply and consequently price. US Steel tried to lead a cartel to control the availability of steel in the US in 1962.

Answer 6

A cartel is illegal. It is used when there are a few major players in an industry. The company leaders will collude and set a price that they all agree with ending the price war.

However, the companies have incentive to break the agreement (prisoner's dilemma) and steal customers from each other by cutting their price for a short period of time typically causing retaliation.

Answer 7

I believe this is in reference to diamonds ... The international diamond cartel, the most successful cartel in history, far more successful than the demonized OPEC, is at last falling on hard times. Economic theory and history both tell us that maintaining a cartel, for any length of time, is almost impossible on the free market, as the firms who restrict their supply are challenged by cartel members who secretly cut their prices in order to expand their share of the market as well as by new producers who enter the fray enticed by their higher profits attained by the cartelists.