Once again, this conversation about cartels is a tangent from the original point. But I will humor you.
1. This is not specific to cartels. This is very typical of market leaders, with or without a formal cartel agreement. It is an excellent example as to why the government should not be involved in markets.
2. This is just silliness. When prices go up, demand goes down (in varying degrees, depending on the elasticity of demand). Furthermore, input prices do not determine output prices. If a cartel wants to increase prices, all it has to do is agree to raise its prices. It's absolutely ridiculous to suggest that they need to increase their input costs to raise their prices. In fact, intentionally increasing input costs to increase prices is about the stupidest thing I've ever heard. You do not make more money by charging people more unless demand is very inelastic. You make more money by charging people LESS (and you charge people less by reducing input prices), so as to increase DEMAND. A far more likely scenario in a hampered market is that a group of businesses (not necessarily even a cartel) will lobby for special privileges and try to keep out competition. The more hampered the market is, the more likely this will happen; clearly then, the solution is to unhamper the markets.
3. That's fraud and hardly unique to cartels. Fraud has its own consequences. Like cartelization, there may be short term gains to be had by committing fraud, but in the long term, it tends to catch up with the perpetrator.
But to reiterate, none of this has *anything* to do my original claim, which is that it makes perfectly good business sense to enter a market with a vastly cheaper product offering than the current alternative. Depending on the specific market in question, there may be regulatory issues, as you've so astutely pointed out. Once again, the clear solution is to remove those regulations and to return to a free market and ideally take the power away from government to interfere with markets. But one step at a time.
Which cartels are you referring to? Keep in mind that I did have a pretty big caveat: that what I'm talking about only applies to cartels of purely voluntary nature, with no government or other coercive interference.
I started typing up an example to illustrate why cartels are unsustainable when I thought "hell, I don't have time to write this out," and looked to Wikipedia. So I will provide you a link instead (which makes the exact point that I was going to make): http://en.wikipedia.org/wiki/C...
The article points out that there was one long term exception, which lasted 134 years. So it appears we may both be right.
There is one additional point that the article does not cover that I am aware of, so I will try to do it justice. If there is say, a cartel of three firms, the extent that they fix prices above the market price, will partially determine the likeliness of another firm to enter the market. For example, if prices are fixed at a small percentage above the market price, an entrepreneur will be less likely to enter the market to undercut; but if the cartel has set prices substantially over the market price, it will be more likely that 1) it'll be noticed and 2) new firms will enter the market to undercut the cartelized prices. We cannot predict exactly how the new firm will set prices, but they all analyze pretty similarly. In every scenario other than the firm setting prices *higher* than the cartelized price, the cartel is likely to bring in this new firm as the cartel's newest member. The new firm must make a decision: reap the benefits of potentially greater profit now and not join the cartel or join the cartel and potentially (although I would say this is mostly an illusion) receive greater long term benefits. Even if the latter is chosen, the cartel now must split its earnings with yet another member (4 ways instead of 3), reducing the effectiveness of the cartel. So to sum up, the more firms enter the market, the more unstable the cartel becomes and the higher the cartelized price is set above the market price, the more likely new firms will enter the market, destabilizing the cartel.
Lastly, if the cartelized price is set at or very near the market price, is this really something worth worrying about?
Note: Yes, I am aware that some markets have very high barriers to entry, but as I've stated before, raising capital for even these markets, although more challenging, has proven far from impossible.
No, it is not. Obviously, to not go bankrupt, one must sell his or her goods above the cost of inputs. But let us not conflate how a single business operates with the study of economics. When I say "price," I don't mean the price set by a single firm, but for a single good throughout the entire market. Let's say Joe Bob owns a convenience store and hires all of friends to run the place, who are a bunch of deadbeats. They constantly screw things up (and likely steal from him), forcing Joe Bob to raise his prices; candy bars are "priced" at $10/bar. Just because Joe Bob is an inept business manager and has high input prices does not mean that the market price for candy bars is $10/bar. It just means that he won't be selling very many (if any) bars.
Perhaps a better example is this: Let's say you have a new idea for a cell phone, which runs CrapOS. To cover your costs and make a moderate profit, you have to charge $400/phone. But no one wants your phone because it runs CrapOS, which is awful. It doesn't matter that the cost of your inputs are just shy of $400 if the phone will only sell at $200. This is society's way of saying you have produced something which they do not want; if you cannot produce and sell your CrapOS phone for $200, society would rather spend their money on something else.
It makes perfectly good business sense. If you were an entrepreneur, wouldn't you be very happy to move to such a technology, drastically undercutting the oil companies? Contrary to popular belief, businesses don't generally make killings because they charge a lot, but rather because they don't charge a lot, relative to other alternatives. If you were one of the first firms to enter such a market (assuming the consuming public moves on this new tech) and make a very handsome profit, charging far more than your input costs. New players will eventually enter the market and big down prices, but since you were [one of the] first players, you got to make a killing. That is how economics works. The market rewards the first entrants to a market via profits above and beyond the going rate of return.
Actually, I think the crux of the problem is that you don't understand price theory. Price is not determined by the cost of the inputs. Rather, society determines the price via their actions in purchasing or not purchasing a good (and of course to nearly infinite extents of purchasing vs not purchasing). The more society wants a good, the higher prices will be driven up (all things the same), inducing more competitors to the market who compete for the lion's share, in turn bidding down the price until equilibrium is reached. (Nevermind that equilibrium almost certainly will change before it is ever reached.)
Actually, minimum wage is a useful tool if you want to drive income to capital instead of labor. If Bob's Diner now must pay everyone $15/hour instead of, say, $10/hour, that means that their employees must bring in greater than $15/hour in net revenue for the business. The most sure way of doing that is to invest in capital goods that enable their minimally-trained staff to produce over $15/hour worth of goods. Trying to make the most of a bad situation (a ridiculous minimum wage), Bob's Diner would likely be forced to purchase more capital goods at the cost of employees.
Your analysis suffers from the same thing that... well, most people's analysis suffers from: the assumption that businesses can simply pay their employees higher real wage rates. Most businesses only run *maybe* 10-15% profit margins, pre-tax. Considering that something like 70% of the input costs for most businesses go to labor, it's rather apparent that a business can't generally just pay their labor force more. While there are certainly cases of individuals working for far less than his or her market value, that is ultimately up to the individual to correct; if in fact, he is working for less than he should, then he can go find another job with a better wage.
Also, the entire notion that demand creates economic prosperity is flawed. But one thing at a time.
I used to work at the State of Oregon Datacenter. Open source is highly avoided. When I was there a few years ago, there were only about 150-200 Linux machines (virtual and physical), if memory serves. There were thousands of Windows servers, many of which could have just as easily been Linux. The entire atmosphere is that of, "avoid Linux, avoid open source." It's as if management is intent on spending lots of money. Even though I still live in Oregon, I've been laughing every time something new comes out with this Oregon vs. Oracle debacle. Knowing how the state's data center runs, it's hard for me to imagine a scenario where the crux of the problem lies with Oracle (and I am no fan of Oracle).
(I realize that Linux is not synonymous with open source. There are plenty of other open source projects, many/most of which can run on Windows as well. My use of Linux is just as a general example of how, generally, open source is handled there. Also, while I think their decisions to avoid open source are problematic, the greater issue is their overall inability to manage people. When I left that job, morale was at an all-time low, as management kept discovering new ways to make their employees' work lives more difficult.)