The Logic Of Collective Action
In his book, The Logic of Collective Action: Public Goods and the Theory of Groups, Mancur Olson writes about how groups are formed. As an economist, Olson investigates the economic incentives and disincentives for group formation, especially political and trade organizations. ?Olson demonstrates that firms may prefer to ?free ride? on the efforts of others rather than pay a share of the costs.? (Ciglar and Loomis 212) His conclusion is that individuals are led to act in a self-interested manner that interferes with any desire to work toward a collective good.
Producers of a certain product have an interest in selling the product for as high of a price as possible. It is in their collective good to find ways to push prices and profits higher. An easy way to achieve higher prices is to organize and establish set prices. However, the organization of a trade group would require full participation of all makers of the product within the market. If one producer refused to join the group and sold the product for less money, that producer would come to dominate the market. A group is unlikely to form because each individual producer has a stronger interest in
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