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Cartel Agreement Example

An agreement is a group of companies, countries or other companies that agree to cooperate to influence market prices by controlling the production and sale of a particular product. 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. An agreement is an agreement between competing companies to obtain higher profits. Agreements generally occur in an oligopolistic industry where the number of sellers is low and the products marketed are homogeneous. Cartel members can agree on price fixing, total industry production, market share, customer distribution, allocation of territories, supply manipulation, creation of common distribution agencies and profit sharing. Cartels are very difficult to detect. They can involve many companies in the sector and customers are rarely able to discover the existence of a cartel. Antitrust authorities should be helped to detect cartels through various means and instruments, the most effective leniency programs. These programs provide for immunity or reduction of penalties for cartel members who cooperate with competition authorities (or “whistleblowers”).

Most OECD countries have adopted leniency programmes that have helped to increase the success rate in cartel detection. A number of horizontal agreements between companies may not have a severe core cartel and, in some cases, have positive effects. For example, agreements between competitors in the fields of research and development, production and marketing can result in lower costs for companies or improved products whose benefits are passed on to consumers. The challenge for competition authorities is to assess these agreements and balance the pro-competitive effects with the anti-competitive effects that could distort the market. The creation of cartels increased worldwide after the First World War. They have become the first form of market organization, particularly in Europe and Japan. In the 1930s, authoritarian regimes such as Nazi Germany, Mussolini-led Italy and Spain under the Franco cartels used agreements to organize their corporatist economies.