Cartel

In economics, a cartel is an agreement between competing firms to control prices or exclude entry of a new competitor in a market. It is a formal organization of sellers or buyers that agree to fix selling prices, purchase prices, or reduce production using a variety of tactics. Cartels usually arise in an oligopolistic industry, where the number of sellers is small or sales are highly concentrated and the products being traded are usually commodities. Cartel members may agree on such matters as setting minimum or target prices (price fixing), reducing total industry output, fixing market shares, allocating customers, allocating territories, bid rigging, establishment of common sales agencies, altering the conditions of sale, or combination of these. The aim of such collusion (also called the cartel agreement) is to increase individual members' profits by reducing competition. If the cartelists do not agree on market shares, they must have a plan to share the extra monopoly profits generated by the cartel.