A cartel formal agreement is a type of contract that is entered into by businesses operating in the same industry. The agreement is designed to help the businesses in the cartel to regulate the production levels, pricing, and other key factors in the market. This type of agreement is often used to control the supply and demand of a particular product or service, and to maintain high prices in order to generate profits.
Cartel formal agreements are illegal in many countries, including the United States, under antitrust laws. However, there are still many industries where cartels operate, particularly in developing countries.
The primary purpose of a cartel formal agreement is to limit competition within the industry. By agreeing to control the production levels and prices of their products or services, the businesses in the cartel can effectively eliminate competition from other companies in the same market. This allows them to maintain a high profit margin, while also ensuring that their products or services remain in demand.
Cartels are often formed by businesses operating in industries that are heavily regulated by the government. For example, the oil industry is heavily regulated, and many oil-producing countries have formed cartels in order to control the supply and demand of oil in the global market. Other industries where cartels are common include telecommunications, banking, and transportation.
One of the key features of a cartel formal agreement is the use of quotas. Quotas are limits on the amount of a particular product or service that each member of the cartel is allowed to produce. By setting quotas, the cartel members can control the supply of their product or service, which helps to maintain high prices. Additionally, by limiting production, the cartel members can ensure that their business remains profitable, as they are able to sell their products or services at a higher price.
Another common feature of a cartel formal agreement is the use of price fixing. Price fixing is the practice of setting prices for a particular product or service at a fixed level. This allows the businesses in the cartel to ensure that their products or services remain in demand, while also generating high profits.
In conclusion, cartel formal agreements are illegal in many countries, but are still used in many industries around the world. These agreements are designed to help businesses control the production and pricing of their products or services, thereby limiting competition within the industry. While there are many negative aspects to cartels, they can also help to stabilize industries that are heavily regulated by the government, ensuring that businesses are able to operate profitably.
