The definition of cartel in economics is determined as the agreement between companies of the same union with the greatest possible formality, its purpose is to eliminate or reduce competition within the market.
In general, they are inclined to the development and control of production and distribution through the alliances of the companies that make them up, this leads to a monopoly market structuring where powers are obtained over the market that possibly benefits the prejudice of the consumers.
How does the cartel work in economics?
The difference of the cartel in economics is based on the advantages distributed among the producers. Its fundamental activity is to determine prices, classify the market, limit the availability of supply and share the benefits.
According to those who defend this agreement, they determine that it can improve stabilization within markets, end high tariffs, benefit consumers, lower the value of production and provide benefits equitably. Despite this, it currently considers some drawbacks, since it legally limits the development of new cartels.
This business situation where production is controlled in the market or the agreements between different companies, is part of the same sector with the purpose of:
- Have much more control in production and supply in the market.
- Reduce or rule out competition in the market, where each company operates separately and thus achieve increased competition between them.
- Producers gain more power and profits in the market and to the detriment of consumers’ interests.
Acts carried out within the cartel in economics
The main acts carried out by a cartel according to the economy to keep a market control are:
- Place a limit on the availability of market supply, in order to increase the prices of supply and demand.
- Set the prices of the good or service that is offered in the market at a higher level than the companies would set within the competitive system, which would help to achieve more benefits.
- The cartel in economics is the formal agreement between companies in order to increase their profits and reduce the competition between them.
- This agreement has been developed in the foreign economy and has managed to approve a wide improvement in terms of its benefits, which is why it is prohibited in many countries.
- It has the objective of eliminating competition by controlling production and prices, establishing a situation similar to that of a monopoly.