What are the resale price maintenance laws? How do they represent, in effect, cartels with free entry?

Imagine a market where instead of competing, businesses come together to fix prices or limit production. This is the essence of a cartel—an arrangement contrary to fierce market competition.

Cartels are often clandestine; they're the embodiment of anti-competitive behavior that can lead to higher prices, less innovation, and reduced choice for consumers. The collusion within a cartel enables member firms to exercise market power collectively that they may not possess individually.

This can be particularly detrimental in markets that generally benefit from competition-driven efficiency and innovation. When companies in a cartel agree to set prices together, it diminishes the incentive for any single member to lower prices or improve services, stifling the competitive process.

The Effect of Cartels on Consumers

• Consumers may end up paying more for goods and services as the competitive price mechanism is undermined.
• Product quality and diversity can stagnate when firms don't need to innovate to attract customers.
• Overall, market efficiency suffers as resources may not be allocated to their best use.

In many jurisdictions, cartels are illegal because they contravene laws designed to protect competition and, by extension, consumers and the overall economy.

Economic welfare refers to the overall well-being and standard of living of people within an economy. It encompasses how goods and services are produced and consumed, and how resources are allocated.

Healthy competition is generally seen as a positive force for economic welfare because it encourages efficiency, innovation, and lowers prices. When businesses vie for customers, they are driven to improve their offerings and become more efficient to survive.

Impact of Anti-Competitive Practices on Economic Welfare

• Price-fixing, market allocation, and output restrictions—all hallmarks of cartel behavior—deter efficient resource allocation.
• Monopolistic practices can result in an economy's production remaining below its potential, which can lead to a net welfare loss.
• Economic inequality can be exacerbated when large firms exert their market power to the detriment of consumers and smaller businesses.

Thus, policies and laws are put in place to prevent anti-competitive practices that can harm economic welfare, with competition law enforcement agencies actively seeking to dismantle cartels and promote a healthy competitive environment.

Barriers to market entry prevent or deter new competitors from easily entering an industry or area of business. These barriers can take various forms, such as high initial capital requirements, stringent regulations, access to technology, or customer loyalty to established brands.

In the context of cartels and free entry, a market that allows firms to join a price-fixing agreement can operate as if it has no entry barriers. However, the real barrier often lies in the informal agreement among the existing members to maintain high prices and limit competition.

Types of Market Entry Barriers

• Structural Barriers: They stem from the nature of the industry, such as economies of scale or network effects that favor existing firms.
• Strategic Barriers: Established companies might create these deliberately, through practices like exclusive contracts or predatory pricing.
• Statutory Barriers: These are created by governments, through regulations and licensing requirements that can sometimes inadvertently favor incumbent firms.

The prevention of market entry barriers is a key focus of competition law. Removing these barriers not only makes markets more accessible for new competitors but also enhances consumer choice and can lead to lower prices and better quality products or services.