DO CONSPIRACY THEORIES REALLY EXIST?

A cartel is formed when a number of firms get together and agree to set the price and output of their product, in an attempt to control the market. Free market naysayers love to believe that conspiracies abound, and that all those fat cat, running dog, lackey, capitalist pigs, frequently get together and plot over ways to screw the consumer. I'm here to tell you this just ain't true.

The reason companies want to (or do) collude is simple. The profits a firm can receive, under a monopoly setting, are generally more than they can get under a perfectly competitive situation. Yet it is this goal of profit maximization that also gives firms an incentive to cheat on the agreement.

OPEC, for example, was formed in 1960 yet really didn't have a big effect on world oil prices until the 1973 Arab oil embargo. In the mid to late 1970s OPEC was very powerful and gas was really expensive. Yet since 1979 OPEC has struggled to keep its cheating partners in line and we now have the cheapest gas prices (in real terms) in decades.

The oil cartel is a perfect example. People worried about the cartels in the Middle East and for a while the group stuck to their agreement. Eventually however, someone got the bright idea to make a little extra money. They cheated on the agreement and gas prices dropped.

Take for example the shows aired by the Fox Network and NBC Breaking The Magicians Code: Magic's Biggest Secrets Finally Revealed and Exposed! Pro-Wrestling's Greatest Secrets. Clearly these people knew they could make some big bucks by revealing industry secrets and they obviously didn't consider the threats to their well-being to be credible.

Certain people think that the Kennedy assassination, for example, is part of a conspiracy on a grand scale. Yet if we apply economic theory to this situation, it is highly unlikely, that many people could keep a secret that big for that long. This theory can be applied to any type of large-scale conspiracy theory. People have too many incentives to cheat.

Colorado has "blue laws" which are enforced by the government. We can't buy liquor or cars on Sunday. (We can't even buy "real" beer in the grocery store on any day!) Several years ago there was some movement to repeal this law, however the liquor stores and car dealerships opposed the repeal. They knew there was no way they could stick to a self-imposed agreement. Eventually someone would have an incentive to cheat, and provide beer for thirsty consumers after church. Yet if the government requires them to stay closed, they don't have to worry about anyone cheating, they all get the day off, and consumers have to remember to buy their beer on Saturday, lest they pass out from dehydration during the Bronco game.

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