Cartels

Cartels

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  Cartels
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  What is Cartel? •A cartel is a group of companies, countries or other entities that agree to work together to influence market prices by controlling the production and sale of a particular product Illegal association • Cartels can be most powerful when high barriers of entry are introduced to the industry or market and all the members can be controlled by a dominant member.
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  Firms form acartel so that they can raise profits
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  Negative effect onConsumer’s interests • Increase the prices • Lacks transparency • Restrict output • Carve up the market
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  Successful Cartel • Allthe members of the cartel must agree on the price and the production levels of the product. • The potential of a member to gain monopoly • Inter-market contact between firms increases
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  Unsuccessful Cartel • Unableto prevent members from cheating because they cannot prevent entry or competition from new products • Cartels are inefficient to the extent that they approximate the behavior of a monopolist • Lack of Coordination
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  Global Successful Cartel DeBeers was founded by British businessman Cecil Rhodes in the 1870s • successful cartel in history both in terms of profit and longevity • In reality, diamond scarcity was artificially created by De Beers • Rhodes owned the entire supply of diamond in the world. Central Selling Organization is key to their strategy • convince the Oppenheimers, who owned a mine whose output equaled the combined output of Rhodes’ mines, to join him in 1902
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  Basic Facts • Createdat the Baghdad Conference on September 10–14, 1960, by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela and later joined by nine other Members • secure fair and stable prices for petroleum • an efficient, economic and regular supply of petroleum to consuming nations • a fair return on capital to those investing in the industry
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  Locally Successful Cartels PakistanSugar Mills Association • Made a three-tier cartel in the industry • Sugar mills claim that they can convert only 8.5pc of sugarcane juice into sugar. • But in reality the industrial average for sugar is 13.5pc • Enforced a fake high price for sugar • Create an illegal monopoly • given cheap long-term loans that are mostly written off by successive governments • gets billions of rupees worth of subsidiaries
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  Globally Unsuccessful Cartel THEELECTRICAL EQUIPMENT CONSPIRACY • The (probably) best-known American cartel: the Electrical Equipment Manufacturer’s Conspiracy • They had a “phase of the moon” system • Depending on the phase of the moon, one company was supposed to submit the winning bid • GE was losing market share because the cheaters were undercutting them. Ultimately the system came to a complete halt when a DOJ investigation began.
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  Locally Unsuccessful Cartel The PakistanShip Agents Association, in 2011, was fined Rs. 1 Million after the findings of creation of a cartel that restricted competition in the market. The Competition Commission of Pakistan held that PSAA was in violation of Section 4 of the Competition Act 2010 after recommending a range of charges for shipping services to the members. PSAA comprised of 70 members who handled vessels at the port. Its argument was that it was being pressurized by the government to regulate prices and to conform competition laws. However, it admitted that although the price range was not binding on its members, whenever a member tried to charge in excess, complaints were received from merchants and trade organizations. Hence PSAA was found guilty of violating section 4 resulting if unsuccessful cartel.
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  Summary • Cartel isa type of market structure • Cartels are illegal • The only legal cartel in the world is OPEC • Cartels often fail because firms don’t cooperate due to lack of trust
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  Thank You