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Cartel

There are some agreements which are assumed to be unreasonable thus it is treated as unlawful or illegal. Cartels are coming under this head of agreements that is causing grave amount of harm to consumers as well as our economy.  Across the world, cartels are considered to be the most anamorphic behavior or act under any competitive regime.

Competition in the market is having many advantages like it helps in improving the quality, makes the consumers aware of good products and services and the most important thing is that competition lowers the price. And thus, higher amount of benefits can be derived from competitive market. Monopoly is the just opposite of competition which is the result of cartel (some producers instead of competing they join an association instead of competing).

Northern Pacific R Co. V. United States U.S.356 (1958)[1]

It was observed that there are certain agreements or practice which are conclusively presumed to be unreasonable and therefore illegal because of their pernicious effects on competition and lack of any redeeming virtue.

Meaning
Section 2 (c) of Competition Act,2002 [2] defines cartel as; 'Cartel includes includes an association of producers, sellers, distributors, traders, service providers who enter in to an agreement among themselves to limit control, attempt to limit control production, distribution, sale, price of goods or provision of services.'

Roughly, making any formal or informal agreement by the firms in an industry for restricting the competition in the market we can call it as a cartel.
 

Effects of Cartel

Cartels results in monopoly which hinders the smooth and easy flow of market forces. The member producers of cartels make profits at the expense of poor consumers. Thus, the direct impact of cartel is put up on the shoulders of consumers that they have to pay more amount on the goods or service that they purchase or avail compared with a competitive market.

Types Of Cartels

There Are 4 Types Of Cartels:

  1. Price Fixing

    When competing business enterprise enter in to an agreement with an objective of fixing, controlling, or maintaining the price of goods and services it is called as price fixing. Price fixing controls the market and it may result in fixing unreasonable and high prices over the goods and services. Price fixing agreement is a form of elimination of competition in the market thus it is unlawful per se.
     
  2. Market Sharing

    When competing business enterprises enter in to an agreement, they do not produce any goods in competition each other or they will not sell in each other's allocated geographic areas or they will not sell to each other's existing customers it is called as market sharing agreement. Here the competitors are dividing or allocating the market thus they are removing competition in the market.
     
  3. Quantity Limiting

    When competing business enterprises enter in to an agreement to cut down volume of output or restrict amount of production thus, they can limit the supply of products and raise the prices these agreements are called as quality limiting agreements and they are illegal per se.
     
  4. Bid Rigging

    It is also called as collusive tendering. When 2 or more competitors enter in to an agreement that they will not fight for a particular tender, this agreement is called as bid rigging agreement. Here the participants of the bid are helping on participant to win the tender.

Penalty For Cartel

Under Competition Act,2002 the highest amount of penalty is given to cartels which is provided under Section 27 of Act [3].
section 27 (b) proviso [4]

In case any agreement referred to in section 3 (Anti-Competitive Agreement) has been entered by a cartel the commission may impose upon each producer, seller, distributor, trader, service provider included in that cartel, a penalty of up to three times of its profit for each year of the continuance of such agreement or ten percent of its turnover for each year of the continuance of such agreement, whichever is higher.

Conclusion
Cartels in all sense is a curse to markets globally. The antithesis of competition is monopoly which is the by-product of cartels. The monopoly that is being created by the way of cartel is never going to create a pathway towards progress in markets. Cartels are presumed to have an Appreciable Adverse Effect on competition, as only few producers growing at the expense of their customers. Consumers are considered to be the king of market but cartel of businessmen are hindering competition and as a result preventing the benefits of consumers.

References:
  1. Northern Pacific R Co. V. United States U.S.356 (1958)
  2. Section 2 (c) of Competition Act, 2002
  3. Section 27 of Competition Act, 2002
  4. Section 27 (b) proviso of Competition Act, 2002

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