What is a cartel?

Vladimir Kulinich
Vladimir Kulinich
February 26, 2013

A cartel is one of the forms of association of enterprises on a contractual basis. Also, the cartel is a contractual union of independent firms, companies producing the same products. Here is a brief explanation of what a cartel is.

Cartel members, while maintaining production and financial independence, can:

  • Determine the general pricing policy for manufactured products;
  • Exchange technologies and patents;
  • To expand the sphere of influence in the consumer market.

The purpose of the formation of cartels is to make profit in the common interest by regulating and eliminating competition between its (cartels) participants, as well as by suppressing external competition.

In the cartel there is no clear head unit. Enterprises belonging to the cartel remain independent. The agreement between them is through negotiations and management meetings.

Cartel features

The cartel has some features:

  1. The union is based on an agreement (collusion by the manufacturer) in order to exclude competition between them and obtain monopoly profits;
  2. Cartel members have ownership rights to their firms, ensuring their economic, legal, and financial autonomy;
  3. Cartels include companies from the same industry;
  4. Cartel firms sell products together and also manufacture them;
  5. In cartels there is a system of restrictions and compulsions.

In many countries today cartel associations are prohibited. An exception is the associations that meet the requirements:

  • a small market share comes to the cartel;
  • cartel activity is the development of a new market;
  • cartels benefit the whole country.

Now you know what a cartel is and what its features are!