Question

Explain what characterizes a Cartel. In particular, explain what Cartel members must be able to do (ie. The actions they can take) to successfully accomplish their goal of impacting the prevailing price/quantity in a market. After your summary, explain how antitrust enforcement has adapted to account for Cartel activity and why new policy approaches are effective (relative to traditional methods).

Answer 1

A cartel is an association of manufacturers or suppliers with the purpose of maintaining prices at a high level and restricting competition. A cartel is a grouping of producers that work together to protect their interests. Cartels are created when a few large producers decide to co-operate with respect to aspects of their market. Once formed, cartels can fix prices for members, so that competition on price is avoided. In this case cartels are also called price rings. They can also restrict output released onto the market, such as with OPEC and oil production quotas, and set rules governing other aspects of the behavior of members. Setting rules is especially important in oligopolistic markets, as predicted in game theory. A significant attraction of cartels to producers is that they set rules that members follow, thus reducing risks that would exist without the cartel.

The categories of cartels are:

• price fixing
• output restrictions
• market allocation
• bid rigging (the submission of collusive tenders

Antitrust laws protect competition. Free and open competition benefits consumers by ensuring lower prices and new and better products. In a freely competitive market, each competing business generally will try to attract consumers by cutting its prices and increasing the quality of its products or services. Because of the harm that cartel violations cause, number one antitrust priority is criminal prosecution of these activities. The Department also investigates and prosecutes bid rigging in connection with government procurement. There are antitrust laws in almost all the countries that have laid down several conditions, on the violations of which, severe actions are taken