| | Ethically speaking, one should make as much profit as possible, not produce the most widgits possible. It may be that producing more than a certain amount of widgits, though doable, is not as profitable as producing less, so to go ahead and produce more would be unethical. Remember, profit is the creating of value, and Objectivist ethics is all about achieving ones values.
Normally, there is a fixed cost and a marginal cost. Assuming a monopoly or a successful cartel and no price discrimination, you set your price so that (the number you'll sell based on demand * price) - (fixed cost + (marginal cost * number)) will be maximized. Nothing wrong with that. If price discrimination were possible, which is the ability to charge different people different amounts depending on your best determination of what they're willing to pay, then you could sell as many widgits as there are people who will pay more than the marginal cost for them and make a lot more money.
When you go from a monopoly to a market with ten firms and no cartel, for example, the price will start out at the monopoly (profit maximizing) price, but each firm will try to undercut the others by a little at a time so they can move all their inventory and not be left with any unsold. A normal demand curve has more demand the lower the price, so each firm can move the price down a little and sell more and make more money than they would at just some small percentage of the monopoly price. This undercutting goes on and on until you reach the competitive price, where if any firm were to drop their price and sell more units, they would make less money. Good for the consumer. Good for each individual firm. Bad for the "industry". It's like game theory - each person is maximizing their profit given what everyone else is doing or expected to do. Nothing wrong with that.
So the difference between a market with a cartel and a market with no cartel is then because the agreement that they make to all charge at the monopoly price, each firm will only sell a small amount of widgits. If they try to produce more then their share then someone will have inventory left over. There's no way to gain market share by price and no way to expand the business except through other considerations, though normally a cartel will also limit the number that each firm is allowed to sell. This may be the best way to maximize profit in the short run, and that's fine, because remember that the capital that would otherwise go to increased output can be put into some other industry -- it's not like there is idle capital or a loss of potential value.
The thing that occurs to me right now is this: If you were running a business, would you want to run a business in a stagnant, restricted cartel, or would you want to be gunning for market share, growth, and increased profitability with all you have? In the long run, if you're better than the other businesses, you'll make more money out of a cartel than in one. So it seems that the only people who would want a cartel would be the ones that think they're worse than their competitors. This is probably why cartels aren't more popular. Someone always thinks he's better and can drive his competitors out. And really, isn't that the Sense Of Life way to run a business?
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