how does the working of cartels restrict the entry of new firms in the market?
Cartel refers to a formal agreement between a group of firms, aiming basically at avoiding competition among themselves to control the major market share. The cartel firms work together and in sync with each other. They jointly control the output and pricing decisions in the market. For example, Organisation of Petroleum Exporting Countries (i.e. OPEC) enjoys a monopoly status in the petroleum industry all over the world.
When a potential competitor enters in the market, all the members of the cartel substantially cut the prices of their product. To sell the product in the same market, the new entrant would also have to reduce the prices of his product. The cartels continue to reduce their prices till the new entrant reaches his shut down point and leaves the market.
Hence, cartels restrict the entry of new firms in the market mainly in this manner.