Meaning of Cartel
A cartel is a pool of businessmen carrying on a similar business, who unite to gain a monopoly in the market. Cartels are mostly formed when, due to intense competition, the small-scale units, have to suffer losses. These small units unite to form a Cartel and earn profits by establishing their monopoly.
Definition
According to Prof. Lifeman
Cartel is an organization of independent businessmen, who unite to earn profits by gaining a monopoly over the market.
Characteristics of Cartel
- Different firms of the same industry join to form a cartel.
- The main aim of such cartels is to gain a monopoly over the market.
- Such kind of cartels are formed mostly to avoid cut-throat competition.
- The agreements regarding production and sales between the member firms are mutual and voluntary.
Objectives of Cartel
Cartels aim to control production by ending competition. When in an industry, the competition becomes intense; there are many difficulties for the industrial units. It not only affects the prices but also harms the quality and type of products produced. Due to excess production, much output remains unsold and the small units have to suffer huge losses, to the extent that they start thinking of closing down. In such circumstances, the establishment of cartels creates a suitable environment for production units and helps the firms in gaining a monopoly over the market, thereby earning profits.
Merits
- Cartel ends unhealthy competition between the firms.
- Since no lengthy legal formalities have to be completed for its formation, it is easier to be established.
- It reaches out to the consumers directly eliminating all intermediaries.
- The elimination of intermediaries helps in the supply of goods at reduced rates, to the customers.
- Saves expenses on advertisement and distribution.
- Provides the advantages of large-scale production.
- Encourages research activities among the producers.
Demerits
- Occurrence of any kind of misunderstandings between the member firms, dissolve the entity of the cartel.
- Mostly the objective of cartels is to establish a monopoly in the market to exploit the consumers.
- It includes various firms in which many unviable firms coexist.