Retail in Switzerland is mostly dominated by highly profitable cartels. The Swis

Question

Retail in Switzerland is mostly dominated by highly profitable cartels. The Swiss authorities anticipate the gradual collapse of these cartels as the country becomes better integrated with the rest of Europe. The Organization for Economic Cooperation and Development, by contrast, holds a more skeptical view, claiming that the collapse of cartels does not necessarily lead to more competitive markets; rather, it adds, cartel breakdowns are frequently associated with an increase in concentration. Which prediction seems more reasonable? Are the two views inconsistent?

Explanation / Answer

Integration of switzerland with the rest of the europe will lead to more competition in the local market, many foreign companies will establish themselves in switzerland thus it will break the monopoly of the local firms, as new competitors will try to establish new trade benchmarks with better quality of goods, thus it will affect the local cartels by out casting them in terms of standards.

Now OECD point of view, this competition will lead to low margin for the firms entering the market, because of smaller consumer base comparatively, now different cartels or firms will come together to hold the market in case of low margins, thus will lead to more concentration .

Thus, both the predictions are correct and are consistent, it is possible that integration will lower the demand and thus lead to rise of concentration of industries.

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