CARTELS

Tanishka Nagvenkar-1738
Vishwa Naik Raiker- 1739
Zann Menezes - 1732
Wendy Louzado- 1769
Elizabeth Pires- 1720
Gwyneth Gracias Flor Da Costa- 1717
Raj Naik - 1740
Rishaad Coutinho- 1752
Prachiti Salkar- 1748
Crystal Caren Rebelo- 1716
INTRODUCTION
 Cartels are organization among firms or producers to exert
control over market.
 This is done by influencing the price of the product or
setting product targets.
 Main Purpose → maximize profit/avoid loss.
 Feature → they restrain competition among producers in an
industry.
 A cartel is always found to be working in specific
industry.
 Eg: Cement Cartels
 Eg: Organization of Petroleum Exporting
Countries(OPEC)
How Cartel Works?

 Cartels are usually found in a market form

called OLIGOPOLY.
 Under cartel, the firms agree about the total
output to be produced by each firm, the price
charged by firms or sharing of markets.
 The outcome of cartel formation is that they
eliminate competition and hence not good for
consumers.
NEGATIVE
IMPACT
OF CARTELS
Cartels harm the Consumer
Cartel members:
 Hide prices or suppress information
 Limit output into the market
 Collectively agree to break up a market region
or territory and not compete in each other’s
territory
CARTELS HARM THE GROWTH
OF A COUNTRY

 Anti- competitive nature of Cartels, hampers

the overall performance of a country’s economy
 They are slow to innovation
 Identifying and proving cartels are a difficult
task
 Types of
Cartels

Classification
based on profit and General
market share Classification

Joint profit Market-

maximisation or sharing cartel. Quota Fixing Cartels

perfect cartel Price Firing Cartels

Term Fixing Cartels
Customer Assigning Cartels
Zonal Cartels
Super Cartels
Types of cartels

(1) General Classification

(2)Joint profit maximisation or perfect cartel

(3) Market-sharing cartel.

Quota Fixing Cartels

 The objective of these cartels is to restrict

supply.
 To achieve this objective they seek to limit
production, by fixing production quotas for each
member.
 No member can produce more than the quota
allotted to him.
 Price Firing Cartels

 Minimum prices are fixed for products.

 No member can sell products at a price lesser
than the minimum price.
Term Fixing Cartels

 Terms of trade are fixed by the cartels.

 Members have to adhere to the terms of trade
fixed by the cartel.
 Terms of trade may relate to time of delivery,
place of delivery, mode of delivery, payment
terms, credit period, insurance, packing,
interest charges on balance pavement etc.
Customer Assigning
Cartels
 They are formed to assure a certain volume of
sales to each member.
 The entire market is divided among the
members and a specific number or type of
customers is assigned to each member.
 The member unit should sell its products only to
those customers which have been allotted to it.
 Zonal Cartels

 They are formed to assure certain volume of

sales to each member.
 The total market is divided territory wise and
members are given the right to deal in specified
territories.
 Super Cartels

 They are formed on an international basis.

 These refer to agreements between cartels of
one country with the cartels of the other
countries.
Joint Profit Maximisation
Cartel under Perfect Collusion
 Firms producing a homogeneous product form a centralized cartel board
in the industry.

 The individual firms surrender their price-output decisions to this

central board.

 The board determines for its members the output, quotes the price to be
charged and the distribution of industry profits.

 The central board acts like a single monopoly whose main aim is to
maximize the joint profits of the oligopolistic industry.
Assumptions
 Only two firms A and B are assumed in the oligopolistic industry that form
the cartel.

 Each firm produces and sells a homogeneous product that is a perfect

substitute for each other.

 The number of buyers is large.

 The cost curves of the firm’s are different but are known to the cartel.

 The cartel aims at joint profit maximisation.

Joint Profit Maximisation Solution
Market-Sharing Cartel
 Another type of perfect collusion in an oligopolistic market is
found in practice which relates to market-sharing by the
member firms of a cartel.

 There are two main methods of market-sharing:

 (a) Non-price competition

 (b) Quota system.

(a) Non-Price Competition
Cartel:
 This is a loose form of cartel.

 Under this type of cartel, the low-cost firms press

for a low price and the high-cost firms for a high
price.

 But ultimately, they agree upon a common price

below which they will not sell. Such a price must
allow them some profits.
(a) Non-Price Competition
Cartel:
 The firms can compete with one another on a non-price
basis by varying the colour, design, shape packing etc. of
their product and having their own different advertising and
other selling activities.

 Thus each firm shares the market on a non-prices basis

while selling the product at agreed common price.
(b) Market Sharing by Quota Agreement:

 The second type of market-sharing cartel is the agreement

reached between the oligopolistic firms regarding quota of
output to be produced and sold by each of them at the agreed
price.
Assumptions
 Only two firms can enter into market-sharing agreement on the basis of
the quota system.

 Each firm produces and sells a homogeneous product.

 The number of buyers is large.

 The market demand curve for the product is given and known to the
cartel.
Assumptions
 Each firm has its own demand curve having the same elasticity as that of
the market demand curve.

 Both firms share the market equally.

 Cost curves of the two firms are identical.

 There is no threat of entry by new firms.

 Each sells the product at the agreed uniform price.

Market-Sharing Solution
 Imperfect Collusion in Oligopoly
 The eases of perfect collusion (centralized cartel and Market- Sharing cartel) do not
exist in the real world.

 The case of a perfect collusion stands as a polar extreme where the maximisation of
joint profits is emphasized.

 But mutual distrust among member firms and their unwillingness to give up all of
their sovereignty make it most unlikely that eases of perfect collusion could long
endure.
PROBLEMS IN A CARTEL
# Internal problems
LOCATING
SHARING
DETECTING
DETERRING CHEATING

# Difficult to maintain

# The members get tempted to cheat

# Formation is slow

# Not possible to change the price of product

BREAKDOWN OF CARTEL
 Falling demand creates excess
capacity
in the industry. e.g OPEC

More competition

 Exposure of price fixing

Over production
Comparison with Monopoly

 Monopoly is the only seller in the market and price setter.

cartel does not has such a strong command on the
market. It determines price by adjustments.

 In cartel there is profit sharing among the cartel

member, whereas in monopoly the monopolist is the only
profit holder.
 Uses of Cartels

 Organize and control distribution

 Set prices

 Reduce competition

 Share technical expertise

Why firms get into
cartels:
 Forming economies of sale.

 Enhancing competitiveness.

 Dividing global business risk

 Setting new standards for technology

 Entering new foreign markets.

 Cartels

Under
The Competition
Act

2002
Definition of Cartel

The Competition Act of 2002 prohibits any

agreement which causes, or is likely to cause,
appreciable adverse effect on competition in
markets in India
Classification of Cartels

 Domestic Cartels

 International Cartels

 Import Cartels

 Export Cartels
Common Techniques
used in Cartel
 Secrecy

 Retaliation Threats

 Compensation Schemes
Challenges in Detecting
Cartels
 No agreements showing existence of Cartel is
found

 It’s existence has to be proved by

circumstantial agreement

 CCI has provided an important instrument for

detecting cartels – Leniency Scheme
Leniency Scheme

 Section 46 of the act empowers the CCI to grant

leniency on a member of cartel

 Full true and vital information regarding the

cartel

 This scheme is successful when the evidence is

supplied by a member of the cartel
Examples of
a cartel
Phoebus cartel
 The Phoebus cartel(1924-39) was a cartel of many
companies (some silent) that included Osram, Philips,
Associated electrical industries and General Electric.

 It was formed to control the manufacture and sale of light

bulbs.

 First cartel to have a global reach.

 Shares were given on the basis of market share.

 Prices were hiked, as there was no competition.

Organization of the Petroleum
Exporting Countries
 International Cartel.

 it is an intergovernmental
organization of 14 nations.

 The 14 countries accounted

for an estimated 44 percent
of global oil production and
81.5 percent of the world's
"proven" oil reserves,
giving OPEC a major
influence on global oil
prices.
Members in the
organisation(OPEC)
 Algeria
 Angola
 Ecuador
 Iran
 Iraq
 Kuwait
 Libya
 Nigeria
Members in the
organisation(OPEC)
 Qatar
 Saudi Arabia
 United Arab Emirates
 Venezuela
 Equatorial Guinea
Why was OPEC formed?
 Demand was growing, oil producing countries weren’t
benefiting. Global production and price was controlled by
western oil companies.

 OPEC was created to give the power back to oil producing

countries.

 Stable oil market, with reasonable prices and steady supplies

to consumers: OPEC was made to make sure that the price of
the oil in the world market will be properly control. Their main
goal is to prevent harmful increase in price of oil global
market and make sure that nations that produce oil have a
fair profit.
OPEC’s Objectives
 Too coordinate and unify the petroleum policies of the
member countries and to determine the best means for
safeguarding their individual and collective interests.

 To seek ways and means of ensuring the stabilisation of

prices in international oil markets, with a view to eliminate
harmful and unnecessary fluctuations.

 To provide an efficient economic and regular supply of

petroleum to consuming nations and a fair return on
capital to those investing in the petroleum industry.
Market- sharing agreement:
 Agreement between competitors to divide up
Customers or Geographical areas where they will not
compete against each other.

 An agreement to limit one competitor's attempts to

make sales in certain markets is almost certain to be
illegal.

 Market-sharing is particularly serious because

nationally it isolates geographical markets.
 Profits are shared equally.
 Example: tomatoes
 Conclusion:
 CARTEL is the phenomena which is bad on consumers point of
view but is positive when comes to an organization.
 Cartel is a never ending process. (since there will be a certain
product where the seller will definitely see to earn profits)
 Certain strategies can overcome cartel.