Pool of Companies

Meaning of Pool of Companies

A pool comprises several companies that determine based on a written agreement and central control a uniform market price for their products. In other words, the members of a pool combine voluntarily and maintain their identity, agreeing to market their product, at the mutually agreed rate. All member companies must comply with the resolutions of this agreement. A central organization controls and intervenes in the general or common matters of the member companies but they are free to handle their internal matters individually or independently.

Definition

According to Prof. Haney,

A Pool is that form of Business Organization which is made by the Federation of various business units and whose members try to keep control over the prices of their products.

Objectives

1. To end competition between the member companies.
2. To earn profits by establishing a monopoly.
3. To bring about a balance in the demand and supply of the product.
4. To bring stability in the prices of the product.
5. To safeguard the rights of the member companies.
6. Equitable distribution of the profits earned by the member companies.
7. To control the volume of production of the member companies.

Forms of Pool of Companies

Based on the types of agreements, pools can be classified into the following main forms

1. Price Pools

   This kind of pool enters into price-related agreements only. For this purpose, an ideal or an average business unit is taken. The cost of production of such unit is added with freight and a percentage of profit to determine the standard price of the product. All the member companies have to sell their product at the determined price.

2. Market or Territorial Pool

   When the pools divide the markets of a product then it is called Market or Territorial Pool. Each company can sell its product in its defined market area and not in any other market.

3. Income and Profit Pool

   Such pools first determine the prices of the products of the member companies. The aim of this is to distribute the incomes and profits of member companies equally among themselves. The member companies deposit their income after sale to the pool and the pool distributes this income equitably among the member companies on a predetermined agreement after deducting its distribution expenses.

4. Export Pool

   It is established to compete with foreign producers in foreign countries and to increase the exports of its own country. The member companies design a common trademark for their products and share the total export profits in the ratio of their contribution.

Merits of Pools

1. Ends unnecessary competition.
2. The producers enjoy the advantages of large-scale production.
3. It encourages cooperation, instead of competition among the producers.
4. The size of a pool is elastic, owing to the voluntary membership provision.
5. Full freedom to member companies on their internal matters.

Demerits of Pools

1. It gives rise to a monopoly.
2. After some time, it starts exploiting the consumers.
3. The agreements of a pool are not stable because it has no lawful aspect.
4. The management of the member companies makes no effort to increase its efficiency.
5. The pool also ignores the quality of the products.