Dan Lewis

Cartel Agreement Example

Evaluation of the Role of Competition and Collusion in The Formation of Agreements An agreement is a group of producers working together to protect their interests. Agreements arise when some large producers decide to cooperate on aspects of their market. Once created, agreements can set prices for members, avoiding price competition. In this case, the agreements are also called price circles. They can also limit productions on the market, for example. B with OPEC and oil exploitation rates, and establish rules on other aspects of members` behavior. The definition of rules is particularly important in oligopolistic markets, as predicted in game theory. One of the points of interest of the agreements for producers is that they establish rules that members follow, thereby reducing the risks that would be at stake in the absence of the agreement. Based on research on organizational errors, scientists from economics, sociology and management studied the organization of cartels.

[17] [18] They ensured that cartel participants cooperated to conceal their activities from antitrust authorities. More than achieving efficiency, participating companies must ensure that their collective secrecy is preserved. [19] It was also argued that the diversity of participants (for example. B the age and size of companies) affects their ability to coordinate to be undetected. [20] Generally speaking, agreements are economically unstable to the extent that members are encouraged to cheat by selling below the agreed price of the agreement or by selling more than the production quotas of the cartel. Many cartels trying to fix product prices are unsuccessful in the long run. Empirical surveys of 20th century cartels have shown that the average duration of cartels discovered is between 5 and 8 years. [13] Once an agreement has been broken, there may be incentives for the formation of a re-delivery of the agreements and the formation of the agreement. According to some reports, OPEC is one of the cartels known to the public that does not follow this economic cycle. Some companies may claim that there is an agreement and behave like cartels when there is no formal agreement, which can be investigated by regulators.

Whether cartel members choose to defraud the cartel depends on the fact that the short-term revenues from the fraud outweigh the long-term losses resulting from the eventual bankruptcy of the cartel. It also depends in part on the difficulty for companies to monitor compliance with the agreement by other companies. If surveillance is difficult, it is likely that a member will get away with fraud for longer; Members would then be more likely to cheat and the agreement would be more unstable. One of the cartel members, Abb, originally from Switzerland, had escaped a fine for being a “whistleblower” and providing decisive evidence to the Commission. Perhaps the best known and most effective cartel in the world is OPEC, the Organization of the Petroleum Exporting Countries. In 1973, OPEC members reduced their oil production.