During or soon after the US Industrial Revolution, why were cartels formed?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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The reason that cartels were formed during this time was that free competition is not really convenient for businesses.  Therefore, cartels were formed to try to reduce the amount of competition.

When businesses are forced to compete, the results can be bad for them.  When there is little competition, businesses are able to charge higher prices.  When there is competition, prices are driven down.  This will mean that businesses will have their profit margins reduced and might even start to lose money.  Of course, businesses would prefer to avoid this.

It is for this reason that cartels are formed.  The members of the cartel try to reach deals that will restrict competition.  They will determine which members get how much market share.  They will set prices.  This way, they will not be competing with one another and driving down prices.  This is unfair to consumers, but it is very good for businesses.

Thus, cartels formed because businesses wanted to avoid having to compete with one another.  They wanted to enjoy high profits instead of getting into harmful price wars.

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