Conspiracy Theories... Part II

I'm taking an Industrial Organization class this semester. For those of you without the Economics vocabulary, that means a class where we study the behaviour of firms in various markets and analyze their potential for market power.

Don't leave! Don't fall asleep! I promise it'll get interesting!

So far, we've looked at firms in the competitive market, monopolists, and oligopolists. We're working right now on the concept of cartels and oligopolies and using game theory to determine their motivations to collude with each other to raise prices. It's actually quite fascinating to see how people get away with this stuff. And to learn how to do it ourselves. I've pretty much mastered the art of maximizing profit and getting away with it (at least on paper) so beware if I go into business as a monopolist. Or join a production cartel.

Today, my professor asked us to think of ways that members of a cartel can enforce their illegal collusion and destroy free-market America as we know it. Other than mob-style tactics, we came up with the idea that if information about different firms' prices and quantities are commonly known and generally accepted as reliable (which will only be true in the case of some third party like the government reporting them), then other members of the collusion agreement will be able to detect and punish deviants.

Now comes the best part. Our prof opens up the Alberta Energy System Operator website and shows us how the government has so kindly posted the daily data of the bids of individual energy generators and suppliers in Alberta– so that "consumers can be informed". How many people get a kick out of reading the daily, even hourly, changes in bids for electricity provision? Well, besides my professor. Then he goes on to tell us that this is exactly the information that all the firms need to be able to run a giant oligopoly of electric providers and to effectively find out which firms are cheating on the agreement and giving us cheaper power!

Yes, you heard me right. The government is assisting possible the illegal exercise of market power by cartels of power generation companies.

That's not all– ever since I started this class, I've been on the lookout for the tactics I've learned in class. I've spied firms creating artificial homogeneity in their products to raise prices. I've heard ads that promote price discrimination through created market segmentation. It's everywhere! Sometimes I feel a little paranoid about it all. But I swear it's REAL!

Maybe in Friday's lecture we can make some tin foil hats. I think mine is about due.