What is a cartel?

When we talk about the concept of a cartel, we refer to an agreement or pact between different companies in the same sector, trying to eliminate the competition existing in it.

Agreements are made between all the cartel companies on how to produce, how much to produce, details of distribution and others ... In this way, and on the impact it has on society, it is said that in a monopolistic market structure.

How does a cartel work?

Unlike monopolyIn the cartel, the joint benefits obtained are distributed among the different companies that comprise it.

There are both comments for and against the existence of the cartel. On the one hand, there are those who say that it helps to reduce production costs, to distribute the benefit and reduce prices and increase benefits for the consumer. On the other hand, there are those who believe (the great part) that the cartel produces inefficiencies in the market for perfect competition, since it acts as a monopoly. That is, prices can change suddenly and the supply is much lower.

It should be noted that in Spain and in most countries the creation of a cartel is prohibited and the forming companies are penalized. It is enough if there are significant conclusions expressed in writing or visible for said organizations to be fined by the corresponding body.

Among the main actions that the cartel carries out on the market, we highlight:

  • They set the price of a very slightly higher good or service. Obviously, except for some differences, the price is the same for both companies. In addition, it is usually agreed relatively higher to obtain greater benefit.
  • Limit the supply of markets, causing them to increase, fromnatural way, prices. This is due to the law of supply and demand.
  • Obtain, thanks to the agreements, higher benefits than if they compete with each other.

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