Cartels

A cartel typically consists of a voluntary and temporary agreement among firms in the same industry to follow common policies instead of competing with each other. These policies can include agreements on prices, market shares, quota systems (limiting production to certain quantities), and conditions of credit. From the perspective of these firms, the main reason for the voluntary formation of cartels is to avoid excessive competition that can lead to price wars that decrease profits for all firms in an industry. This is a departure from the conventional understanding that a competitive market of unfettered supply and demand is the most efficient and fair way of establishing prices and quantities of production. While prices and quantities of production are variable under conditions of free competition, ...