ECONOMIC OF GLOBAL TRADE & FINANCE

Economic of Integation- Cartel.

M-com- 1By

Mangesh BarhateRoll No: 25

2

‘Cartels’

CONTENT

What is Cartel?Facts of Cartels. Definition.Type of Cartels.Cartel success.Why cartel often fail.Detecting cheat. OPECAmerican anti-trust law.Cartels in India.Conclusion.

WHAT IS CARTEL ?

A Cartel is formal “agreement’’

among competing firms. It is a formal

organization of producers and manufacturers

that agree to fix prices, marketing, and

production.

Cartels usually occur in an oligopolistic

industry.

A group of parties, factions, or nations

united in a common cause; a bloc.

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5Firms form a cartel so that they can raise

Profits

FACTS OF CARTELS

The name is derived from Edmund

Cartel and Georges Cartel. The aim of such

collusion is to increase individual

members' profits by reducing competition.

Cartels usually occur in an Oligopolistic

Industry .Cartel members may agree on

matters as Price Fixing

Total Industry Output , Market Shares,

Allocation Of Customers

'

A cartel is a collection of businesses or countries

that act together as a single producer and agree

to influence prices for certain goods and services

by controlling production and marketing. A cartel

has less command over an industry than a

monopoly - a situation where a single group or

company owns all or nearly all of a given product

or service's market

Definition of 'Cartel'

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CARTEL

PUBLIC CARTEL

DEPRESSION CARTEL

CRISIS CARTEL

PRIVATE CARTEL

Types of cartel

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Conditions for cartel success

Cheating can be detected and prevented

Low expectation of severe government punishment

Low organizational costs

Cartel controls market

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They earn greater profit by coordinating their activities rather than acting independently

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firms don't cooperate

due to a lack of trust

Firms “cheat”

Produce extra output (or lower the

price)

Why Cartels often fail ?

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Detecting Cartels

Detecting Cartels

Structural Methodolog

y

Behavioral Methodolog

y

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Structural MethodologyNumber of Firms

Concentration and Firms Size

Demand Variability

Capacity Utilization

Cost/Expense to Sales Ratio

Entry Barriers

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Examples

Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates,

and Venezuela.

Cartel of twelve countries

Mechanism for implementing production restrictions.Incentives to cheatEnforcement requires detection and effective penalties.In the United States, cartels are illegal; however, the Organization of Petroleum Exporting Countries (OPEC) - the world's largest cartel - is protected by U.S. foreign trade laws.

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Refers to seven oil companies that dominated mid 20th century oil production, refining, and distribution

According to a report, 56 per cent of cartel complaints relate to the petrol sector.

Seven oil companies

AMERICAN ANTITRUST LAW

The Clayton Act and its AmendmentsClayton Act 1914Robinson-Patman Act 1936Cellar-Kefauver Act 1950

These Acts prohibit the following practices only if they substantially lessen competition or create monopoly.

AMERICAN ANTITRUST LAW

The Clayton Act and its Amendments 1. Contracts that prevent a buyer from

reselling a product outside a specified area (called territorial confinement).

2. Acquiring competitor’s shares or assets.3. Interlocking directorships among competing

firms.

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Cartels in India

Cartels in Soda Ash• In 1996 (ANSAC) comprising of 6

American producers.• Attempted to ship a

consignment @ cartelize price but held by MRTP

Cartelization in the bidding process of Railways

Cartelization in the Cement Industry in India

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Conclusion

Cartel agreements are economically unstable.

Once a cartel is broken, the incentives to

form the cartel return and the cartel may be

re-formed.

International and national cartels are hard to

burst.

Cartels do not abolish competition, but

regulate it.

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