Cartels are formal organizations between manufacturers that agree to fix prices and production levels. They can be public or private. Cartels aim to control markets through price fixing and allocating territories, but often fail because the incentive for individual firms to cheat grows over time by lowering prices or overproducing. Notable examples include the aviation cartel between Indian airlines and the lysine cartel in the 1990s involving Archer Daniels Midland that was fined heavily for price fixing. In conclusion, while cartels seek to regulate competition, they are inherently unstable arrangements.

1. Cartels

2. What is cartel?
oCartel is a formal organizations of production and manufacturers that agree to
fix prices, marketing and production
oOccurs usually in oligopolistic industry
oProducts being traded are usually commodities

3. Types Of Cartels And Outcomes
Types
oPublics
oPrivate
Outcomes
oPrice fixing
oMarket shares
oAllocation of territories

4. Condition for cartels success and failure
oLow organisation cost
oCartels control the markets {Success}
oCheating can be detected and prevented
oFirms don’t co-operate due to lack of trust
oFirms cheat {Failure}
oProduce extra out-put
(or lower the price)

5. Cartels tends to be unstable over a long
period of time. WHY?
Each firm in the cartel often has an incentive to
“cheat”.
Could occur by one firm lowering its price.
Firms can also overproduce income.

6. Aviation cartel
Rival private airlines kingfisher and jet airways, with collective market share of
58% , announced a Strategic alliance and enhance efficiency (2008)
Agreed for:
oCross-utilise crew on similar aircrafts
oUse common training facilities
oPassengers can use frequent flyer programmes by flying in either of the airlines

7. Lysine cartel
oTook place in 1990’s
oArcher Daniels Midland (ADM) and Asian companies involved
oPrice increased by 70% in the market with in a short span of 3 months
oADM was fined heavily with $70millions and other Asian companies with $21
million

8. Conclusion
oCartels agreements are economically unstable.
oOnce a cartel is broken, the incentives to form the cartel return and the cartel maybe
re-formed.
oInternational and national cartels are hard to burst
oCartels do not abolish competition, but regulate it.