Reply To: Collusion to Tighten Supply


I’m not sure that the scenario you describe could even happen in real life. Dr. Herbener can correct me if I’m wrong here, but aren’t prices a factor of supply and demand at any particular moment, and that historical pricing serves as a guideline rather than a written-in-stone obligation (I remember reading about this in Human Action I think…)

While it’s true that if many suppliers held their goods off the market, the price of the good would rise (supply has fallen relative to demand), when they “dump” their goods back on the market, the supply will rise relative to the current level of demand, and therefore prices will fall. Perhaps on the day of the dumping people might not be aware of it and would continue to pay the higher price, but I think the market would adjust to the new supply quite quickly.

I also believe we’ve seen this happen in reality numerous times, and not just from cartels and collusion. Look at the gas lines on the east coast in the wake of Hurricane Sandy. Putting aside government-enforced prohibitions on selling goods for true market prices, the current real market price for gasoline is quite high, because the supply has fallen dramatically. But once the shortage revolves itself, absolutely nobody will be willing to go on craigslist and pay $12 for a gallon of gasoline. The price adjusts according to the supply.