How A Cartel Is A Competitive Market - 1719 Words

A cartel is a formal organization set up by a group of firms that produce and sell homogenous products for the purpose of enacting and sharing monopolistic rents. Their organizations consist of formal agreements between competing firms to control prices or exclude entry of a new competitor in a market. The sellers or buyers of a cartel agree to fix selling prices, purchase price or reduce production using a variety of tactics so that competing on price is avoided. Because most of these firms are monopolies, they tend to have considerable amounts of market power, thus making them want to behave like monopolies. With its lack of power, a cartel acts as a counter-veil to an imperfectly competitive market where fewer sellers have the ability to base their products on decision making and supply and demand. Since a cartel acts as an imperfectly competitive market, it is best to define it as having a direct relationship with an oligopoly industry. In Oligopoly markets, few numbers of sellers are joined together to form a market or an industry. Usually consisting of 2 or 20 firms, their main goal is to sell and produce differentiated products and services. With decisions influenced by one another, the price of the product and the quantity of production is fixed in accordance with its member s own self-interest and self-respect. The interdependence of firms in oligopoly markets is demonstrated in the obligation to maintain price stability shown by popular demand. It may lead firmsShow MoreRelatedThe Price of Diamonds Is too High in the Modern Market Essay1281 Words   |  6 Pagesessay will effectively argue that the price of diamonds is too high in the market in the present day as a result of various economic factors. The essay will give information on diamond cartels and how these carte ls had been influencing the price of the diamonds. Furthermore, the essay will give rise to the economic theories that affect these prices and how the price is controlled in the market. Investopedia refers to a cartel as an organization that is created from a formal agreement between a groupRead MoreThe History of the Diamond Cartel and Its Role in Determining the Price of Diamonds1174 Words   |  5 Pagesthey were still rare, a diamond cartel was introduced. A cartel is defined as a group of firms that gets together to make output and price decisions (Cartel Theory of Oligopoly, n.d.). Hence, the diamond cartel aimed to maintain high prices to maximise the profits of the suppliers by restricting the supply. This essay will analyse the history of the diamond cartel, including diagrams that illustrate what the price of diamonds would be with or without the use of a cartel. The notion that diamonds areRead MoreThe Australian Competition And Consumer Act974 Words   |  4 Pagesindividual firm which break the market equilibrium with their market power. Well competitive market would deliver efficiency costs, faster innovation, prevention of unduly concentrated market s, business freedom, wealth distribution, and enhancement of international competitiveness. Therefore, the ACCC is playing a crucial role in Australia, and their activities can be divided into four categories; (1) the policies for anti-competitive conduct and anti-competitive practices, (2) the mergers policyRead MoreThe Price Elasticity And The Income Elasticity Of Demand For Levi s Jeans1663 Words   |  7 Pagesdemand and supply, and is defined by: Edemand= Percentage change in quantity demanded Esupply = Percentage change in quantity supplied Percentage change in price Percentage change in price Elasticity of demand and supply tells us â€Å"how quantity responds to a change in prince† (Begg and Vernasca, 2011, p.123). If E1, the change is elastic (big response), if E1 the change is inelastic (little response). As a result, knowledge on elasticity is therefore important for companies whenRead MoreHorizontal Agreement Analysis739 Words   |  3 PagesAgreement between 2 or more enterprises that are at the same stage of production chain and in the same market. Horizontal agreements are made to develop a healthy relationship between competitors where agreements are for sharing risk, making cost saving, pooling know how launching innovations faster. But in reality such agreement can prompt violations of anti-trust laws agreements to fix prices or to allocate territories waste society’s resources, create efficiency and injure consumer welfare.Read MoreCartel and the Cocaine Industry Essay1083 Words   |  5 PagesCartel and the Cocaine Industry The drug cartel based in Cali, Colombia, was one of the largest players in the multi-billion dollar worldwide cocaine industry. Although their operations are highly illegal, opposed by both Colombian and US law enforcement agencies, the cartel continues to run a very effective operation. The vast majority of this cocaine is destined for the US market. It reaches the US by numerous routes - by air, by sea, but mostly over land by Mexico. Once the cocaine reachesRead MoreEffects Of The Seven Sisters Actions Outlined1289 Words   |  6 PagesThis lead to the creation of the Organisation of the Petroleum Exporting Countries (OPEC) in Baghdad, 1960. Their initial aim was to ensure the security of their tax revenues from the International Oil Companies. This can be seen as the creation of a cartel in order to counter the oligoponistic power of buyers. In the previous time periods discussed its hard to formally prove that structural change has taken place in a quantative way. The oil shocks of 1973 and 1979 provide our best opportunity to definitelyRead MoreAllocative Efficiency and Dynamic Efficiency1114 Words   |  4 PagesEfficiency is to fulfil the needs and wants of consumers by making optimal use of scarce limited resources. There are several meanings of efficiency and all are linked to how well a market shares scarce resources to satisfy consumers. 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Thus, displaying how an industry dominated by one company has maximized profits due to choking supply and inflatingRead MoreThe Decision For Us Federal Antitrust Law1630 Words   |  7 Pagesof reason guided by economic principles, is essential in order to assess how a particular manufacturer’s policy affects consumer welfare . Blair et all, note that economic theory establishes that RPM can be widely procompetitive, as it is recognised as an efficient pricing practice that benefits consumers in many commercial transactions involving branded products . The economic logic of RPM is to redirect retailers’ competitive activities from prices to customer service. Factors such as price, quality