Chris Neeley

2/23/05

Econ 12

 

Self Destructive Cartel

 

It was a normal winter's day, one of those days when your mom doesn't have to tell you to put your gloves and jacket on.  Cary pulled his car into the parking spot designated his by Cary himself at the high school parking lot.  Most of the kids who attended Redwood High School were lower middle class children, yet many of them drove cars to school.  Cary was no different, except instead of a hand me down 1985 Toyota Corolla, he pulled into the parking lot everyday in a brand new BMW 545i.  Cary had been working with one of his friends named Ben at the local kinko's for almost two years now and had been saving up his money from the job.  At least that's what his parents thought, the students knew better. 

            Cary approached school like he always did and expected the crowds of kids to swarm around him and pay their respects.  Today was a day in which Cary felt like he needed that support from his friends.  It had been a long night of arguing with Ben over there business agreements.  For the past two years Cary and Ben had been making copies of the high school’s parking permits, lunch cards, and anything else worth any money at the school.  They would then sell them to the students at a slightly reduced price from the school's offering price.  This little scam had high returns because the original fixed cost was very low and only consisted of purchasing the original from the school.  The variable costs were very low as well because both Ben and Cary had access to all the materials and machines they needed at work.  Over time most of the kids in Ben and Cary's class found out about there discounts on the lunch cards and parking permits so they began purchasing them from Ben and Cary instead of the school.  Luckily the school was so big that no one noticed that sales went down a little bit. 

            The night before Cary and Ben began arguing about their little business because sales had been steadily decreasing for the past couple of weeks.  Ben was arguing that they should lower their price since their costs were so low anyways, they would still be making a big profit.  Cary argued that a decline in sales was inevitable, the novelty of the fakes were wearing off to many students and therefore they should raise prices to maintain the same profit they had been for the few months prior.  The unknown was that the school had figured out what was going on and was slowly picking off the users of the fake cards, but kept it on the down low in order to try and get to Ben and Cary. 

            Typically business happened between 7:30 and 8:00 a.m. in the parking lot when Ben and/or Cary showed up.  Today Cary wasn’t greeted with his usual gathering of friends looking for a bargain.  He was a little surprised but it had happened before.  Usually the students would just meet him on his way to class if he was late.  He looked at his clocks to be surprised again that he wasn’t late.  He proceeded to get out of his car and walk up towards the school to see one of the largest crowds of his friends he had seen in a long time.  They were gathered around Ben.  Ben had broken agreements with Cary and lowered the price of his fakes.  Instead of selling them for $5 each he began selling them for only $4 each to try and bring back some of their lost sales.  This angered Cary as they had agreed from the beginning they would never sell for cheaper than $5 even to close friends.  Well Cary couldn’t afford to have no sales for the day so he said, “Hey I’m selling them for only $3 each.  The crowd seemed somewhat unconvinced but began to migrate to Cary.  Ben quickly retorted yelling $2.  Cary was not going to be beaten so he began selling them for $1 which led to almost no profit.  The rest of the day past without incident.

            The next day Ben and Cary made up and agreed that they would begin selling them for $4 each.  The students weren’t having it and demanded them at a price of $1 because they knew that Ben and Cary could sell for that price.  Since Ben and Cary were already on the burner with the school, and a price of $1 would provide no noticeable profit, they gave up selling fake goods.