What is the difference between a monopoly and a cartel?

A monopoly and a cartel are both market structures that involve a limited number of firms controlling the supply of a particular good or service. However, there are key differences between the two.

A monopoly refers to a market structure where there is only one firm that dominates the entire market and has no direct competition. This firm has complete control over the supply of the product or service, allowing it to set prices and quantity levels without any external constraints. Monopolies often arise due to barriers to entry, such as high start-up costs or exclusive access to resources, which prevent other firms from entering the market and competing.

On the other hand, a cartel is a form of collusion between multiple firms in an industry. In a cartel, these firms come together and agree to coordinate their actions in order to maximize their joint profits. This typically involves setting output levels, prices, and market shares collectively, as if they were a single entity. Cartels are usually formed to restrict competition and increase prices, often leading to higher profits for the participating firms.

The main difference between a monopoly and a cartel lies in their formation and legal status. A monopoly is typically a result of natural market forces or government regulations, whereas a cartel is a deliberate agreement among firms. Monopolies are generally considered illegal or heavily regulated in many countries due to their potential negative effects on competition and consumer welfare. Cartels are also generally illegal due to their anti-competitive nature, as they restrict market competition and harm consumers.

In summary, a monopoly is a market structure where a single firm has exclusive control over the supply of a product or service, while a cartel is an agreement between multiple firms to coordinate their actions and restrict competition. Both monopoly and cartel can lead to higher prices and reduced consumer welfare, but monopolies are typically seen as more detrimental to the market due to their lack of competition.