Destruction referred to the demise of the existing monopoly. Schumpeter argued that monopoly profits provide and important incentive for innovation which in turn promotes economic growth. Cartels as Monopolies A monopoly can arise in a market where there are many firms if the firms agree to cooperate with one another and act as a single firm. A carte l is a group of firms that acts as a single seller to maximize joint profits. The firms cooperate to restrict output to the point where joint profits are maximized.
Firms have an incentive to produce more than there quota of output.
The problem is if all firms cheat, the higher output drives the price back down to the competitive level. Cartels tend to be unstable because of incentives of individual firms to cheat. Successful cartels are often able to license firms. If a monopolist has the opportunity to sell different units of the same product at different prices, it can increase its profits above the level it could earn by selling at a single price. This practice occurs in monopoly markets and in oligopoly markets.