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Types of Antitrust Violations. Investing Commodities. What Is a Cartel? Key Takeaways A cartel is a collection of independent businesses or organizations that collude in order to manipulate the price of a product or service. Cartels are competitors in the same industry and seek to reduce that competition by controlling the price in agreement with one another. Tactics used by cartels include reduction of supply, price-fixing, collusive bidding, and market carving.
In the majority of regions, cartels are considered illegal and promoters of anti-competitive practices. The actions of cartels hurt consumers primarily through increased prices and lack of transparency. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.
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Related Terms What Is an Oligopoly? An oligopoly is a market structure with a small number of firms, none of which can keep the others from having significant influence. The problem of enforcement is finding hard evidence of collusion. Cartels are formal agreements to collude. Because cartel agreements provide evidence of collusion, they are rare in the United States.
Instead, most collusion is tacit, where firms implicitly reach an understanding that competition is bad for profits. The desire of businesses to avoid competing so that they can instead raise the prices that they charge and earn higher profits has been well understood by economists. Even when oligopolists recognize that they would benefit as a group by acting like a monopoly, each individual oligopoly faces a private temptation to produce just a slightly higher quantity and earn slightly higher profit—while still counting on the other oligopolists to hold down their production and keep prices high.
Related Comparisons. Contribute to Diffen Edit or create new comparisons in your area of expertise. Log in ». Terms of use Privacy policy. An explicit, formal agreement between firms in an industry to fix price and production quantity. An economic market condition where numerous sellers have their presence in one single market. A small number of large firms that dominate the industry. But much higher than perfect competition where there is a large number of buyers and sellers.
A small number of firms dominate the industry. Prices and production quantities are fixed. Product is undifferentiated. These firms compete with each other based on product differentiation, price, customer service etc. Barriers to entry are very high as it is difficult to enter the industry because of economies of scale. Market making ability by an explicit agreement between the dominant players in the industry. Market making ability because of very few firms in the industry. Each firm can therefore significantly influence the market by setting price or production quantity.
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