Market Cartels

Market Cartels

IN WHAT WAYS CAN MARKET CARTELS BE UNDERSTOOD AS MARKET STRUCTURES THAT IMPROVE PRODUCTIVE PROCESSES AND INCREASE THE VALUE OF PRODUCTION?

Cartels are formal agreements among firms. They occur in mainly in oligopolistic industries. Cartels usually involve the production of similar goods and services that is controlled by a small group of sellers. Members of cartels usually introduce and follow agreements on any of the following or a combination of any of the following: price fixation, division of profits, territories or market shares, allocation of customers or the control over the industry output

Cartels are specific productive structures that allow producers of goods to exert monopoly power. Generally, cartels are viewed in a negative manner as instruments of limiting or controlling trade. However, there is a different perspective that can be used to relate cartels as agents of improving the value of production.

In order to be able to understand this we have to look not only the role of cartels as a process but also the role of cartels as an end in itself. In addition to this, we have to point out that the success of cartels is subject to many conditions including lack of close substitutes, relative inelasticity of demand amongst others.

Using the soviet experience we can view state controlled cartels as being agents for increased productivity. This can be clearly seen when the cartels are regulated in order to ensure that they

Market Cartels

produce goods with a certain specification. This form of technologically controlled cartel can lead to the improvement of the value of the products produced.

HOW CAN CARTELS BE VIEWED AS COMPETITIVE ORGANIZATIONS RATHER THAN ANTI-COMPETITIVE ONES?

Many scholars have claimed that cartels usually exist between 5-8 years before they disintegrate. This, many scholars have argued is caused by the need for the different players within the cartel to increase their profits. Since they are usually faced with the prisoner’s dilemma, players within the cartel ultimately are lured by the need to make super-profits and this causes them to dishonor the agreement with time.

Cartels have always been involved in the process of perfect differentiation of homogenous products. This aspect of the industry portrays cartels as competitive entities and not the other way round.

In addition to this, there are no barriers to entry in the industry where the cartel is operating. This aspect of not restricting other players from reaping from the industry shows that the cartels within the industry are not just enjoying the returns but they are also actively competing with each other.

COMPETITION IMPLIES WINNERS AND LOSERS. WHO ARE THE WINNERS AND LOSERS IN SERIOUS CARTEL SITUATIONS?

In any form of business there never fail to be those who gain and those who loose. In industries where cartels are existent there is usually the problem of first realizing whether we have natural

Market Cartels

monopolies, private monopolies or public monopolies. Depending on the nature of the cartel, there will be differences between those who lose and those who gain.

In any industry where we have a high involvement of cartels customers or consumers are usually the greatest losers. This loss is either in the form of higher prices or sub-standard goods. This is usually the case where the goods provided for by the cartels have a relatively inelastic demand curve. In addition, if the goods have no close substitutes customers/consumers will have to pay high prices for closely differentiated products by the cartels.

In addition, the general society is also at a loss through environmental pollution. The relation between the firms the community and the environment. In this perspective, the impact of the cartels operations on the environment that the people live in is very crucial.

The concept of pollution is clearly espoused as one of the most adverse that affects the environment of the same consumers of the company or the cartels products especially where the products are petroleum based. The issue of land contamination, air pollution and water pollution are clearly highlighted especially in Latin America and sub Saharan Africa where environmental laws are not well implemented.

On the other side, the firms that collude to form the cartel are the major beneficiaries. This is because the firms can easily collusively raise prices to earn super profits.

To improve on market share every company uses its own strategy. Nevertheless, in any industry there are four core elements of marketing strategy. These four elements are strategies that involve the product, pricing, promotion, and distribution. In all these areas, the firms forming

Market Cartels

the cartel employ them optimally to increase their profits.

Conclusion:

Microeconomics is the branch of economics that concerns itself with the processes that firm’s, households and individuals concerns themselves in allocating limited resources. In this sense microeconomics scrutinizes how these decisions affect the demand and supply schedules and helps determine not only the prices but also how these prices influence the supply and demand of goods and services in any given market segment.

In cases where cartels take the centre stage, it is necessary for there to have superb government regulation policies.

References:

Mankiw, N. G. (2004), Principles of economics (3rd Ed.), Chicago, ILLIOIS: Thomson South-Western

Philip Hardwick (1982), an Introduction to Modern Economics, Longman, U.K