Cartel

Published Dec 28, 2022

Definition of Cartel

A cartel is an agreement between two or more firms to limit competition in a particular market. That means it is a formal arrangement between companies to control prices, production, and other aspects of the market. Cartels are illegal in most countries, as they are considered anti-competitive and can lead to higher prices for consumers.

Example

To illustrate this, let’s look at an example of a cartel in the oil industry. Imagine two large oil companies, A and B, that control most of the oil production in a certain region. To increase their profits, they decide to form a cartel and agree to limit their production. This way, company A knows that company B won’t undermine its strategy and vice versa. As a result, they can keep the price of oil high and both make more money than if they actually competed.

However, this agreement is illegal in most countries, as it reduces competition and leads to higher prices for consumers. Therefore, the government may take action against the cartel and impose fines or other penalties.

Why Cartels Matter

Cartels are a major concern for governments and regulators around the world. They are considered anti-competitive and can lead to higher prices for consumers. In addition, they can also reduce innovation and limit the entry of new firms into the market. That’s why most countries have laws and regulations in place to prevent cartels from forming and to punish those that do.