What Is Cartel In Business?
“A cartel cannot be formed by any kind of force. It is basically a chosen agreement, which the companies agree to because they want to control the sales market. ”
It happens many a time that certain companies who have agreed to work in unison with each other are not able to sustain their agreement on a number of issues. Such a group is called a pooling agreement. The limitations of the pooling agreement are taken care of by the Cartel.Cartel is formed with the objective of ensuring enforceability of terms of agreement among firms. Such a group of companies has a very close association as far as the sales are concerned The member units are tempted to increase their output beyond the allotted figures and so they resort to a cartel.
A cartel is essentially a selling agency. It can be described as an association of firms producing similar products who agree to surrender their outputs to a common agency. This common agency then distributes the profits proportionately. In other words it can be said that the all the marketing strategies are formed collectively so that maximum profit for each partner is insured.
A cartel cannot be formed by any kind of force. It is basically a chosen agreement, which the companies agree to because they want to control the sales market. This also ensures the avoidance any kind of threat of competition from an extremely big company. Under this form of combination, producers come together and form an association for the selling of goods through cartel.
Profit sharing is also done on the basis of prearranged and programmed formulae. The formula is so devised that not even a single company feels let down. This is done to ensure the stability of the cartel for a considerable length of time.
Cartels exist only for a limited number of years because the factors governing their formation are always subject to changes. The changes include, level of economic development, the rate of growth, the level of government interference etc.
The members of a cartel don’t become dependent upon each other as may be naively assumed. On the other hand various member companies are fully autonomous as far as their actions and processes are concerned. It has a federal character whereby its members agree to abide by common decisions on specified matters taken by the central organization.
Author - DeeKay
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