Jenny April 9, 2021

When a few large companies dominate a market, there is always the potential for companies to want to reduce uncertainty and behave in a form of collusive behavior. In practice, cartels can be more fragile and may not last very long. This is because some members may be encouraged to deviate from the agreement by subspending the price of the agreement. The almost inevitable need to limit production in order to maintain high prices will allow companies to have free production capacity and create the temptation to increase their profits by increasing their production. Such an expansion would not only generate profits on additional sales, but would also increase the profit from existing sales, as average fixed costs would decrease as production expanded. An agreement is an organization established from a formal agreement between a group of producers of a good or service to regulate the offer of price regulation or manipulation. In other words, a cartel is a collection of otherwise independent companies or countries that act together as if they were a single producer and can therefore set the prices of the goods they produce and the services they produce without competition. A cartel has less control over a sector than a monopoly – a situation in which a group or company has almost all or almost the market for a particular product or service. Some cartels are formed to influence the price of goods and services legally traded, while others exist in illegal industries such as drug trafficking. In the United States, virtually all cartels, regardless of their field of activity, are illegal under U.S. cartel and abuse of dominance legislation. Secret cartels that are concealed are characterized as tacit collusion and are considered legal.

Adam Smith, in the wealth of nations, explains that it is easier to meet to serve the common interests of stakeholders, such as maintaining low wages, while it is difficult for workers to coordinate to protect their own interests because of their large numbers. As a result, entrepreneurs have a greater advantage over the working class. However, according to Adam Smith, the public rarely hears about coordination and cooperation between business owners, as it takes place in informal environments. [5] The most common method of tacit agreement is price management, which occurs when a company sets a price that will then be accepted as a market price by other producers. To do so, there is no need to enter into a formal or written agreement; Just think that this is the best way to maintain or increase their profits. Price management can take many forms: since the end result of successful agreements will be to create a monopoly-like situation, with its disadvantages and loss of economic efficiency, cartels are illegal in many countries, including the United Kingdom and the United States.